What Are Accounting Reports? (With Definition And Types)
By Indeed Editorial Team
Published 14 October 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Accounting statements and reports are essential financial documents that businesses create and update periodically. These reports help businesses, investors and the government track different transactions and determine the financial health of the company. Learning about the significance and types of account reports can be essential if you work in the banking, finance and accounting industry. In this article, we define accounting reports, explain their importance, list what information is present in such reports and discuss some common types of account statements and reports.
What Are Accounting Reports?
Accounting reports are structured business documents that contain information about a company's finances, particularly revenues, expenses and profit or loss. These reports can be generic, providing an overview of the entire company's accounts or extremely concise, giving thorough information about the sales or profitability of selected products. Depending on the goal, the format of these reports can take the form of profit-and-loss statements, balance sheets, statements of owner equity or statements of free cash flow. Specialised financial reports, like the accounts receivable or consolidated profits statements, focus on one aspect of the company's finances and cash flow.
An accounting or financial report may include data from all company departments or only analyse elements like profit or expenses. Most companies maintain accounting statements and reports monthly, quarterly or annually to track changes in the company's finances and determine if there is progress towards the company's financial objectives.
Importance Of These Reports
Businesses prepare accounting statements and reports to learn about their financial status and viability, track transactions, maintain budgets, make forecasts and reduce discretionary business expenses. It can be challenging for business leaders to be mindful of the company's revenues and expenses in the day-to-day decision-making, and reviewing updated accounting statements periodically can help them make objective and proactive financial decisions for the benefit of the organisation. Here are some benefits of accounting statements and reports:
Increases awareness about the business's financial health
Accounting statements and reports provide all relevant information to determine a company's financial health, enabling senior decision-makers to make crucial financial and non-financial choices to ensure profitable growth. With an accurate picture of the financial condition, the company's senior management can decide which investments, sales and acquisitions to prioritise in the coming quarter or year. Besides smarter decision-making, these reports can also help in forecasting future business trends.
Enables budget management and maintenance
Company leaders usually review the latest accounting statement and report while creating budgets and allocating expenses for the coming year. Accurate financial reports can help gain vital business insights into the company's financial health, and help leaders determine the right policies for the future. In addition to budget management, these reports can also help identify wasteful expenses and limit them to increase profitability.
Simplifies management of financial transactions, payments and invoices
These reports facilitate transparency by offering an effective bookkeeping system for all business transactions and invoices. This allows the company's top leadership to review all financial activity easily, identify challenges and spot successes. Having a detailed record of all financial dealings in one place also makes it easier to track payments, invoices, cash flow and expenses.
Helps improve compliance with law and tax regulations
Businesses have the responsibility of reporting their activity to relevant authorities by submitting monthly reports for accounting. Besides helping calculate the right amount of taxes, these reports also help the government classify the company correctly and provide the right support. So, accurately prepared accounting statements are vital to remaining compliant with local and national laws.
Promotes better relationship with investors
Accounting statements and reports prepared by professionals provide a comprehensive, accurate and reliable analysis of the state of a company's finances. Once audited, these reports can help build trust with existing investors and attract new ones. Accounting statements are also vital when companies are trying to raise credit from lenders.
Reduces financial and accounting errors
Accountants and auditors use a variety of sophisticated digital tools and accounting software systems to generate modern accounting statements. These tools perform complex calculations and generate reports automatically. Besides reducing errors and saving time, these reports provide company leaders with reliable financial data periodically.
What Information Is Included In An Accounting Report?
An accounting report usually comprises the following components:
External financial statements such as the balance sheet, statement of cash flows, income statement, statement of comprehensive income and statement of shareholders' equity
Quarterly earnings disclosures
Annual and quarterly reports for investors
Quarterly and yearly financial reports to governmental organisations
Information regarding changes in the shareholder structure and other securities
Issuance and sale or purchase of new company shares
Audit reports and notes regarding the financial statement
Other relevant financial data for investors and the public
Types Of Accounting Reports
Here are some different types of accounting statements and reports:
An income statement is a report that shows the total costs and revenue of a company and helps establish the overall net profit amount. Accountants use financial data and transactions from the company's ledgers and accounting journals to create accurate income statements. To arrive at the final income figure, the statement takes into account both main and secondary sources of income. The income statement also usually includes a detailed list of all planned and unplanned business expenses.
Cash flow statement
A cash flow statement helps review the movement of cash through company processes and systems. It essentially illustrates where the money is coming from and where it is going. This enables leaders and investors to have a better understanding of how effectively the company is generating and using capital. A cash flow statement measures the flow of cash over a fixed period. To compile a cash flow statement, an accountant investigates the movement of cash in each company account. These accounts usually include asset accounts, liability accounts, expenditure accounts, income accounts and equity accounts.
A balance sheet displays the transactions, opening balance and closing balance of company accounts at a given time. The company can examine both its financial reserves and its liquid assets by analysing the balance sheet. This report can assist prospective investors or lenders in gaining a better understanding of the financial status of the organisation.
In most companies, the company accountant usually creates a balance sheet at the end of each accounting cycle. Similar to the income statement, the data necessary to generate the balance sheet comes from the ledger. Balance sheets are also crucial for businesses to ensure compliance and file income tax returns.
A general ledger records and summarises all company transactions. It uses debits and credits to show a final positive or negative balance in the general ledger. Accounting statements and processes are usually less accurate when credits and debits do not align. Assets, liabilities, equity, income and spending are the most common accounts tallied to create the general ledger report. The general ledger is useful for more than just balancing the books as companies typically use it for performing an audit, tracking financial activities, assessing their credit limit and applying for and receiving loans.
The profit-and-loss statement includes information regarding all the company's revenues and expenditures for a specific time period. The profit-and-loss statement may be one of the most frequently used accounting statements, and it usually consists of a variety of elements. Revenues, costs, cost of products sold and net income are some essential elements of these types of financial reports.
A profit-and-loss income statement can help companies identify urgent financial discrepancies and challenges immediately. Many companies use their quarterly or annual profit-and-loss statements while creating budgets and business plans. These reports help senior company leaders make informed business decisions and determine the long-term business strategy.
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