I see it all too often, especially with cloud-based programs, that business owners are doing their own bookkeeping (and not looking at their financial reporting)! Which is great if it is being done right, majority of our new clients have had a family member, close friend or administration staff take care of their bookkeeping and there is a reason they end up calling Astute Administration Services to help – I wanted to write this blog to go into more detail what your business reporting mean, and hopefully by understanding the reports your will in turn understand the importance of having your data entry bookkeeping being done right & right for you!
Understanding your Financial Reporting
Your financial reporting includes reports that show your financial position, financial performance and cash flows are of interest to users (owners, investors, lenders etc) of accounting informaiton. This information is also used to lodge your year end date to the ATO. For business purposes, this information is arranged in the format of different financial statements or reports, the information in these reports is pulled from the data-entry bookkeeping and its important to get it right! Lets go into more detail on the most commonly used reports.
Profit and Loss (or income statement)
The purpose of the income statement is to report the success or failure of the entities operations for a period of time. It lists the entities income, that is revenue and gains, followed by its expenses. At the bottom the profit (or loss) is determined by deducting all the expenses for all of the income. This is commonly referred to as the ‘bottom line’
Balance Sheet
The balance sheet reports assets and claims to those assets at a specific point in time. The claims are sub-divided into tow categories:
- Claims of creditors are call liabilities
- Claims of owners are called equity
The basic accounting equation is Assets = Liabilities + Owners Equity. It always balances!
Current Assets – Cash and other assets that re reasonable expected to be converted to cash or used in business within 1 year.
Non – Current Assets – Assets that are not expected to be consumed or sold within 1 year.
Current Liabilities – Obligations reasonable expected to be paid within the next year.
Non-current Liabilities – Liabilities that are not expected to be aped within 1 year.
Equity – The owners’ claim on total assets of the entity.
We do more that just financial reporting – other services available at Astute Administration Services
Or check out a different article;
- Top 5 Biggest mistakes employers make when it comes to Employee V Contractor
- Bookkeeping and Data Back-up 101
Cash Flow Statement
The main purpose of the cash flow statement is to provide information about cash receipts, cash payments and the net change in cash resulting from the operating, investing and financing activities of your business during the period. These activities are reported in a format that reconciles the beginning and ending cash balances. You want to ensure your cashflow captures all your cash inflows and outflows, we have listed the common ones here;
Operating Activities
- Cash Inflows
- From sale of goods and services
- From returns on loans (interest received)
- Cash Outflows
- To suppliers for inventory
- To employees for services
- To governments for taxes
- To lenders for Interest
- To others for expenses
Investing activities
- Cash Inflows
- From sale of property, plant and equipment
- From sale of investments
- From collection of principal loans
- Cash Outflows
- To purchase property, plant and equipment
- To purchase investments
- To make loans
Financing Activities
- Cash Inflows
- From issues of company’s own shares
- From issue of debt
- Cash Outflows
- To shareholders
- To repay long-term debts
I could go into analysing these financial reporting but I think I will save that for my next blog …
