At the basis of every company’s competent management, we can find accounting reports. Tracking the financial health of a business and its evolution over time is essential: to organize important business transactions, keep track of invoices, but also for legal purposes.
Created centuries ago with the development of trade and commerce, accounting is now the backbone of any business’ financial world. A company needs it to grow and flourish, and disqualifies itself immediately when it cannot keep its standards right. It facilitates comparison, eliminates ambiguity and is the only way disclose a business’ financial status to its stakeholders.
In this article, we will go over the different type of basic accounting reports, why you need them and how you can present them – this last point is crucial in the communication of your financial story, especially when we consider all that is at stake with accountancy.
What Are Accounting Reports?
Accounting reports are periodic statements that present the financial status of a company at a certain point in time, or over a stated time-period. It details the business transactions and operations.
They are a compilation of financial information that infer from a business’ accounting records. Their nature varies, as they can be brief or custom-made with a specific purpose: detailing sales per region, the profitability of a product, etc. Usually, accounting reports are considered to be financial statements which include:
– a balance sheet: it is a snapshot of a business at a specific time, and shows the ending assets, liability and equity balances as of the balance sheet date. It is useful to measure the financial reserves and liquidity of a business.
– an income statement: is also known as profit and loss report. It details the revenue earned over a certain period of time.
– a cashflow statement: as the name states, it is a statement of the flows of cash both in and out. It details the sources and uses of cash in relation to a business’ operations, investments and financing. It is often considered as the most reliable source of information when it comes to the cash-generation capacity of a firm.
Why Do You Need Accounting Reports?
Accounting reports are important elements of business, regardless of a company’s size. As we have said, they are very useful when it comes to maintain a track record of transaction, cashflow, income, etc. But they also reduce the risk of reporting inconsistencies to investors, financial managers, or worse, tax authorities. You can be sanctioned for accountancy inaccuracies, that’s why you want to avoid them at all cost.
Likewise, the risk of greed, theft, and dishonesty exists everywhere – and every month we discover corporate abuse somewhere in the world. Companies have to be held accountable for their methods and ways of running a business, and therefore specific accounting areas were enforced to eliminate fraud (auditing, income taxation, …).
In general, a well-implemented accounting reporting system makes it easier to access the financial statements you need, when you need them.
Accounting reports will let you keep track of business transactions, but they will also – and this is an important point – help you maintain a budget, predict cashflow, and forecast revenue. They also allow for an assessment of the current situation compared to a previous one and/or compared to a forecast.
The more accurate the records, the better the financial analysis or projection. Having an objective view of the financial situation enables top-management to make better-informed decisions for investments, sales, purchases. Good accountancy helps financial analysts to understand and interpret the data, and thus communicate it effectively. To do so, however, you need several tools: a good accounting software, but also a solid data visualization tool.
Software like Infor, Xero or Lexware can help you in the bookkeeping activities of your company. Coupling their accounting capabilities with data visualization will bring your insights into focus for operations and translate it into actionable intelligence.
Why Does Data Visualization Matter For Your Accounting Report?
Like in any business area today, managers are confronted with a growing amount of data to assimilate and from which they have to make sound decisions. Visualizing all this information by creating managerial accounting reports is a way to face this data overload and improve the quality of decision-making.
However, introducing data visualization to the accounting world doesn’t come as easy as we would think at first. In a field obsessed with calculating every dollar to the precise cent, it can be easy to end up trapped in a maze of detailed numbers and table. Yet, there is more than tables to visualize the results of an accounting report.
Let’s take a real-life example. If you are a food company for instance, with several subsidiaries spread across the country: you need to have an accurate and easy-to-grasp view of the cash that goes in and out for each store and its evolution. To do so, a dashboard software comes in handy, as it lets you see which unit runs out of cash, the criticality of the situation in relationship with profits or loss from other stores. Same goes if you have several suppliers to pay while your customers delay their liability: with a real-time visualization of what’s in and what’s out, you are in a better position to avoid being in the red for too long. Indeed, you won’t need to wait for the next report to be produced: the dashboard is automatically updated every time you perform a change in the source. Besides, the possibility to add data alerts will always keep you safe, as you will be notified as soon as a something changes in your data.
As we see, dataviz isn’t just eye candy to please managers, it is a powerful way to communicate all your work in a comprehensible and accessible way to anyone. It will help you analyze your potential problems or pain points, and explain them better. Trying to present these reports in the least details and you will end up creating a visualization more impenetrable than the table you first tried to replace.
So, let’s take a step back and see what can be done. Excel tables are extremely powerful and essential for any accountant, and so are Lexware and Infor. Yet, they lack data visualization that could really make sense and help get the whole understanding of the balance sheet and income statement they hold in store.
How Do You Visualize Them?
With the help of a financial analytics software, you can connect your various data sources and work on them conjointly. This eliminates potential data silos and creates a single source of information. The intuitive drag and drop interface will make it even easier to build professional financial accounting reports. Let’s have a look at three of them:
The Balance Sheet Accounting Report
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The balance sheet is a snapshot of your business finances at a moment in time, showing assets and liabilities. It is a good testimony of how efficient you are at spending your capital.
This dashboard presents four important metrics when it comes to understanding how your assets are being managed: ROA (Return on Asset), ROE (Return on Equity), Working Capital ratio and Debt-Equity ratio. Each of them is detailed thanks to its evolution over time. On the side, the balance sheet is summarized showing the current assets (inventory, accounts receivable, and cash) and long-term assets, as well as the liabilities.
Having your balance sheet visualized that way is a great advantage to keep an eye on the essential facets of your company’s progress, and ensure viability and success in the long-run.
The Cashflow Statement
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This dashboard will monitor what goes in and out of your treasury. It gives a good overview of your liquidity and cash flow situation, and at the same time gives a good indication on how your can improve it: tracking and optimizing the accounts payable and receivable. It then details the quick and current ratio, along with the cash balance.
Visualizing your cashflow statement is critical, because you immediately know whether you are still on track or not. That’s an essential asset, since your main goal is to keep the financial fluidity necessary to survive and thrive.
The Income Statement
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The last of our financial accounting reports provides an easy-to-understand view of the income statement by detailing all of its components, from the gross to the net profit, as well as all the other performance ratios.
As stated above, the income statement helps you evaluate the profit and loss. It gives the month-to-month trends of the OPEX ratio and each of its components, the EBIT (earning before taxes) evolution over the year, and finally sums up the four categories into the overall income statement.
That visualization is much more efficient and communicative than any table in Excel. It is a great help if you want to evaluate your performance in light of market fluctuations, investments, and other operational considerations.
Accounting in general, and accounting reports in particular are not just a clearance of what revenue and what expenses you are getting. It is the process of cashflow management to control a business’ spending, get a snapshot of its financial health at a certain point in time – but not only. They are great sources of information to disclose potential issues within your business and communicate them, provided you use the right tools.
Implementing a dashboard reporting software to make sense of all the information you handle will help you greatly in communicating your insights. Dataviz helps accountants tell better data stories in an accessible way to everyone. To start you visualization journey now and see how much your reports could benefit from it, why not starting our free 14-day trial?