Bookkeeping Basics : Reports

If you have a complicated bookkeeping software you probably have a complicated amount of financial reports. But let’s stick to the basics and introduce some of the key reports available.

Income Statement or Profit and Loss Report
This is your high level report of your business’ income and expenses for the period. If you track accurately by category it will also break down income and expenses to that level.

You can use this report to track the performance of the different aspects of your business – for example compare the income and associated expenses of a particular aspect of your business. You can also see grouping of related expenses like marketing, cost of sales and indirect overhead expenses. Over time you can also track trends and growth within your business for example to ensure overheads are growing in proportion with income growth.

Balance Sheet Report
This report shows the assets, liabilities and owners’ equity breakdown of your business. If you are a sole trader don’t expect a lot of information from this report as you are unlikely to have significant assets or liabilities.

However, if you are recording retained earnings and owners’ equity accurately, this will let you know the balance of these accounts and what profits from the business you can access as the owner.

Cash Flow Report
If you operate your business on a cash method of accounting (not an accrual method of accounting) then your cash flow report and your income statement will effectively be the same. But what is really useful is to see your cash flow by month on a chart or diagram. This will show you how your income and expenses fluctuation through the year and as your business grows will be able to assist with cash flow forecasting. For example if January is a quiet month for you, post Christmas shopping slow down or families busy with school holidays, then you’ll know that planning a cash heavy investment in January needs cash saved prior to January or rescheduling to a later date.

* As with all our blog posts this information is provided for reference only. It is not intended to, nor should it, replace the advice of a registered tax accountant who can deal with your specific business circumstances.

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