Why Do You Need To Visualize Your Accounting Reports?
Table of Contents
1) What Are Accounting Reports?
2) Why Do You Need Accounting Reports?
3) Types Of Accounting Reports
4) Accounting Reports Examples
On 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, and 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 them to grow and flourish and disqualify itself immediately when it cannot keep its standards right. It facilitates comparison, eliminates ambiguity, and is the only way to disclose a business’ financial status to its stakeholders.
In this article, we will go over the different types 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.
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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 infers from a business's 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, these reports are considered to be financial statements which include:
a balance sheet: 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 a profit and loss report. It details the revenue earned over a certain period of time.
a cash flow 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's operations, investments, and financing. It is often considered the most reliable source of information when it comes to the cash-generation capacity of a firm.
These are just 3 of the main types of accounting statements that businesses use for their daily financial operations. We will cover this more in detail later in the post with a few financial dashboard examples, but first, let's look at the main benefits coming from these analytical tools.
Why Do You Need Accounting Reports?
These reports are important elements of a business, regardless of its size. As we have said, they are very useful when it comes to maintaining a track record of transactions, cash flow, 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 costs. Some other benefits you can reap from these analytical tools include:
- Knowing the business's financial health: Generating accounting reports is crucial for the correct management and functioning of a business. They provide all the key information needed to paint an accurate picture of the company’s financial health and help decision-makers make important financial and non-financial decisions to ensure the company is growing in a profitable way. Having an objective view of the financial situation enables top management to make better-informed decisions for investments, sales, and purchases.
- Maintaining a budget: In order to ensure the correct functioning of the different strategies and activities, managers need to set a budget that will cover everything while still ensuring profitability. This is a fundamental aspect, especially considering that a shocking 82% of small businesses fail due to cash flow mismanagement. Smart accounting reports prevent this from happening by providing businesses with all the needed information to make the best decisions and build a sustainable budget.
- Organize transactions and invoices: Transparency is key when it comes to efficient financial reporting. Reporting in accounting helps you do just that by providing an efficient bookkeeping system of all transactions and invoices to keep close track of every movement. Having a centralized location for transactions with the time, date, and nature of the transaction helps organizations understand money and goods distribution.
- Stay compliant with law and tax regulations: 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, …). For that purpose, monthly accounting reports serve as a means for businesses to prove to authorities that they are staying compliant with any laws and tax regulations, they assist organizations in calculating the correct amounts of taxes to pay keeping in mind regulatory guidelines.
- Improve relationship with investors: As we said already, professional accountant reports provide a complete picture of a company’s financial health. This also proves to be a very useful document when it comes to attracting new investors and keeping the ones you already have happy.
- Minimize errors: You might have full trust in your accountant's reporting abilities, however, managing data and sensitive information manually is both time-consuming and risky due to the possibility of human error. With modern accounting statements generated with professional online reporting software, the process of calculation and report generation is done automatically. This means more time to make informed decisions as well as significant mitigation of errors that can resonate across the organization.
Accounting statements will let you keep track of business transactions, but they will also help you maintain a budget, predict cash flow, 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.
In general, a well-implemented accounting reporting system makes it easier to access the financial statements you need, whenever you need them. 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 online data visualization tool. We will go deeper into the role of visuals for efficient financial analysis, but first, let's take a deeper look into the common types of financial reports.
Types Of Accounting Reports
Now that we have a definition of accounting reports and analysis as well as a list of insightful benefits organizations can reap from them, it is time to go deeper into the topic by looking at the main types of accounting reports and what is their main purpose.
1. General Ledger
Starting off with the general ledger, it's the foundation of your business bookkeeping, used to organize and summarize all your financial transactions. This report is often used to prepare for an audit, apply for a loan, and balance your books. It is composed of various accounts, these accounts represent categories that show where your money is going and where is it coming from. Common types of accounts include your assets, liabilities, equity, revenue, and expenses.
Another important element from a general ledger report is debits and credits. These represent whether the amount of money your business has increased or decreased. The meaning of these two changes depends on the type of account being observed. For instance, when we are talking about assets, cost of sales, inventory, and other related accounts, a debit increases the amount of money and a credit decreases it. On the other side, when we talk about accounts such as liabilities, revenue, equity, and capital, just to name a few, a credit increases the money in the account and debit decreases it.
2. Profit & Loss
The profit and loss statement portrays details regarding a business's revenues, costs, and expenses over an accounting period which is usually a quarter or a year. It is one of the most popular or common reports as it essentially tells organizations if they are able to generate profit by increasing revenue or decreasing costs or both. This information enables managers to make important decisions such as budget planning, adjusting expenses, and evaluating profit generation, just to name a few.
Also widely known as an income statement, this type of report is composed of 4 key indicators: income, expenses, costs of goods sold, and net income. It can be compared to other periods to see how things changed over time, as well as highlight areas of the business that could be more profitable.
3. Balance Sheet
The balance sheet is another of the most important reports in accounting. It summarizes a company’s assets, liabilities, and shareholder’s equity during an observed period of time. In short, it provides a complete picture of an organization’s liquidity by listing what it owns and owes as well as what is invested by shareholders.
That said, the balance sheet has 3 main components: assets which is everything your company owns that can be turned into cash, liabilities which is everything your company owes to others, and equity which is the value of ownership of your company. By looking at these 3 elements together you get a complete picture of your company’s financial health and can extract deeper conclusions such as the effectiveness of your pricing strategies or if you are spending too much. Lastly, a balance sheet is also a great document to show to potential investors or to apply for a loan as it shows how financially stable you are.
4. Cash Flow Statement
A cash flow statement is the third of the most important financial accounting reports, together with the P&L and the balance sheet. It provides insights into a company’s inflows and outflows of cash during a specific period of time which can conclude in a positive or negative cash flow. A positive one indicates you earned more than what you spent and you are able to pay creditors and investors, while a negative one means you spent more than you earned.
There are two ways to use a cash flow statement. On one hand, we have the direct method which considers all movements of cash from core operating activities. And on the other hand, we have the indirect method which considers cash movements coming from operations, investments, and financing activities. The sum of these three core elements is called the net cash flow and it is often used by investors to determine the value of a business’s stock.
5. Statement Of Retained Earnings
As its name suggests, this report portrays the beginning and ending retained earnings over an observed period of time. In short, retained earnings are a portion of the company’s profit that is retained from the net income at the end of an accounting period for future use as shareholder’s equity, paying liabilities, or investing.
Also known as a statement of owner’s equity or statement of shareholders equity, this accounting report is used by analysts to understand how profits are being utilized. It can be used as a complement to a balance sheet or income statement as well as a separate document. Its main three components include the beginning retained earnings, net income, and dividends paid to shareholders. This type of report is done once in every accounting period and it allows businesses to understand if they are in a position to finance operations and pay off debt or if there is a deficit.
6. Accounts Receivable Aging
Next in our list of types of accounting report formats, we have the accounts receivable aging report. This report type categorizes a company’s accounts receivables by the time they’ve been outstanding or in other words, have not been paid yet. Accounts receivables arise when a company offers its customers services or goods on a credit. For example, an energy company provides electricity to its customers and cashes them once the month is finished and based on their consumption.
Generally, the receivables are broken down into time intervals that can be 1 to 30 days up to 90+ days. With complimentary information such as the customer name, money balance, and days past, among other things. Businesses use this report to keep a record of customers' debt and stay on top of collections and any bad debt.
7. Accounts Payable Aging
Following on the same line as the previous report type, the accounts payable aging is showing the money your business owes to others instead of what others owe to you. Examples of accounts payable include transportation and logistics, production materials, energy/power, and building leasings, among others.
The accounts payable aging report is intended to provide businesses with a quick idea of all payments that are due in an immediate future. Typically, payments are separated into different time intervals, for example, a 30-days period. Managers use the information extracted from these statements to manage cash flow, build budgets, and calculate future expenses, among other things.
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Accounting Reports Example & Samples
With the help of 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.
We just went through the main types of accountant reports. As mentioned, there are 3 big report types often used by organizations to assess their financial performance in various aspects. These are the balance sheet, the income statement, and the cash flow statement. Here we will see how these reports can be elevated with the help of interactive data visualizations and a dashboard generator. That said, let’s dive into our management accounting reports examples!
The Balance Sheet
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.
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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 keeping an eye on the essential facets of your company’s progress and ensuring viability and success in the long run.
The Cash Flow Statement
This accounting report sample 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 of how you can improve it: tracking and optimizing the accounts payable and receivable. It then details the quick and current ratio, along with the cash balance.
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Visualizing your cash flow 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
The last of our examples provide 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.
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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 (earnings 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.
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 tables. Yet, there are 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 of 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, and the criticality of the situation in relationship with profits or loss from other stores. The same goes if you have several suppliers to pay while your customers delay their liability: with 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 something changes in your data.
As we see, DataViz isn’t just eye candy to please managers, it is a powerful way to exceed your reporting process and 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 detail 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. As seen with our list of examples, a modern online data analysis tool, provides you with a mix of advanced analytical features as well as intuitive visualization options that can be easily accessed and shared for a collaborative data-driven approach.
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Accounting in general, and accounting reports in particular are not just clearance of what revenue and what expenses you are getting. It is the process of cash flow management to control a business’ spending, and 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 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 summarize what we say, here are the main types of accounting reports:
- General Ledger
- Profit & Loss
- Balance Sheet
- Cash Flow Statement
- Statement Of Retained Earnings
- Account Receivables Aging
- Accounts Payable Aging
To start your financial visualization journey now and see how much your reports could benefit from it, why not start our free 14-day trial?