Understanding the Three Accounting Reports
When you look at the financial statements of your company, you are likely to see at least two of the Three Accounting Reports. The income statement is probably the most important, since it reveals the results of your business’s operations. The balance sheet, on the other hand, may present a different picture. Regardless, the two reports work together to give you an accurate picture of your business’s current financial state. The balance sheet lists the business’s assets, liabilities, and equity, while the income statement reveals how much of those assets are accounted for.
Keeping track of your accounts receivables is one of the most important parts of accounting, as it shows you what money is owed to you. This report is crucial for any business that issues invoices, since it keeps track of outstanding invoices and can help you forecast cash flow. This report can also be used to determine how much bad debt your business may incur. By understanding these reports, you will be able to make better decisions as a business owner.
A law firm should have a set of accounting reports for various situations. An overview will give you a birds’-eye view of your finances. A chart of accounts will show all the accounts your company holds, so you’ll know which ones to keep and which to delete. The Statement of Financial Position will tell you your account balance as of a specific date. This is important because it gives you a clear picture of your financial position.
The cash-flow statement provides a clearer picture of a business’s finances and operations. Investors will scrutinize this report. Its sections are operations, investments, and financing. Your assets should equal your liabilities. For example, if you borrowed $10,000, you have $6,000 in loan cash. You would have $11,500 in assets. You could purchase a new lawn mower and earn $1,500 in cash. However, if you have $10,000 in assets, you would have $11,500 in total assets.
Revenues are reported in the top section of the report. It shows the amount of money a company expects to receive from customers and how much money has actually been paid. You can view this as the top line of a P&L or the top line of a balance sheet. Lastly, expenses are reported by activity and can be either positive or negative. There are some exceptions to this rule, but the P&L is probably the most important one.
The Profit and Loss Statement is a summary of the activities of a business during a particular period. Common reporting periods are a month, a quarter, or a year. The P&L reveals the total amount of money a company made, expenses, and taxes, and ends with the Net Income, which is the after-tax profit. Finally, the Balance Sheet shows the resources of a business. Total assets, liabilities, and equity must equal each other.