7 Vital Accounting Reports: How to Make Them and Why

Not every business can afford its own accounting team, yet no one can get away from accounting – it is what helps to calculate taxes, manage payroll and do many other essential things that keep companies running and growing. 🚀

As one of the key parts of accounting, reporting requires special attention. And here, we’re going to talk about the most vital accounting reports that every business should keep. Stay tuned to learn what they are, why they’re important, and how to build them right.

What Is an Accounting Report?

An accounting report is a document that summarizes the financial performance results of a business.

Different types of accounting reports contain disparate kinds of information. The basic ones record expenses and revenues of an entire organization, a particular business unit, or a project for any period of time. Besides, they may contain the info on a company’s valuable resources (aka assets), as well as their actual or potential economic benefits.

4 Reasons to Keep Accurate Accounting Reports

• Financial accountability  🤝

Financial reporting is a key tool for maintaining managerial accountability. In other words, it allows a company to demonstrate responsible and fruitful use of investors’ or shareholders’ money, which helps to build trust with them and keep them satisfied.

• Better tax management  💷

Compliance with tax regulations is a vital responsibility of every business. They may vary from state to state and from industry to industry, yet income taxation remains a universal rule for all (with rare exceptions). And by accurately recording your revenues in accounting reports, you can figure out and handle your tax obligations in an easier way.

• Improved efficiency  📈

Excess costs and low profits are the sure signs of poor resource management. By keeping tabs on expenses and revenues via accounting reports, you can get better insight into your business’s financial problems and get informed to boost efficiency if necessary.

• Enhanced planning  🧠

Accounting reports provide a wealth of information on business performance, and you may use it to estimate resources, fine-tune budgeting, analyze risks and evaluate the potential values of your future projects and investments. In sum, with the right approach, these reports foster all-around and in-depth financial analysis that takes business planning to the next level.

7 Vital Types of Accounting Reports

1.    Income statement 🤑

An income statement (aka profit and loss statement) is a detailed record of revenues and expenses over a specific accounting period.

This report contains three core elements:

• Revenues – The amount of money earned.
• Expenses – The cost of resources and operations required to generate those revenues.
• Net income – The amount of money earned after deducting all the incurred costs, including interest expenses and taxes.

Uses and importance ❗

An income statement demonstrates whether a company makes a profit or not, which is a major indicator of the financial health of a business.

By creating income statements for different departments or projects, you can evaluate how efficient and viable your various operations and endeavors are, compare their performance, and use the analysis results for improvement.

By running this report regularly over an extended period of time, you can also get an insight into your overall progress, see if your financial outcomes get better or worse, and understand why it happens so.

How to make an income statement 📜

1. Decide on a reporting period.
2. Figure out the revenues for the chosen period.
3. Sum up the costs of sales (these include materials, labor, and other direct costs).
4. Determine the gross margin – Deduct the cost of sales from revenues.
5. Sum up your overhead costs (i.e., all the expenses that are not directly involved in the production and sale of products or services: management costs, facility or technology rental, marketing and advertising, etc.).
6. Calculate the pre-tax income – Deduct operating costs from the gross margin.
7. Identify the income tax – Multiply your pre-tax income by your local tax rate.
8. Calculate the net income – Subtract income tax from pre-tax income.
9. Double-check, edit, and finalize the report.

Pro tip: Do you charge clients for services on an hourly base? Then, nothing will help you collect important pre-accounting data more efficiently than a time tracker!

Using actiTIME, you can set billing and cost of work rates for different types of work. And after enough time is logged into the system, you may run a Profit / Loss Report to see your direct revenues and staff-related expenses for any period of choice.

This and other actiTIME reports can be downloaded as CSV or PDF files. So, you may easily import the necessary performance data to any third-party tool that you apply for creating your income statements.

2.    Cash flow statement 🌊

A cash flow statement is a summary of the inward and outward movements of cash and cash equivalents in a business.

The report is made of three major components:

• Operating activities – They include all operations that help you sell your products or services and make money. For instance, if you run a shoe factory or any similar kind of business, your operating activities will include production, supply and inventory management, sales, delivery, marketing, etc. The purchase of manufacturing materials, payroll, and payments from clients are some good examples of operating activities.
• Investing activities – These are investment transactions focused on business growth and the purchase of long-term assets, such as facilities, machinery, patents, trademarks, and other tangible or intangible possessions and goods that cannot be turned into cash or wasted away within a year.
• Financing activities – These are the transactions associated with long-term liabilities, equity, and dividends. They include any form of cash flow between a business and its creditors, investors, and shareholders (e.g., stock issuance, debt settlements, payouts to shareholders, etc.)

Uses and importance ❗

The cash flow statement is a robust financial planning tool. By showing how a business gets and spends its money, it reveals the effectiveness of various spending activities and allows you to measure liquidity (i.e., an organization’s ability to convert assets into currency).

This kind of knowledge promotes better control over cash. In other words, it helps to minimize liquidity risks, always meet your financial obligations and stay profitable. Besides, it gives you a chance to improve long-term planning by taking into account any previous spending mistakes and experienced cash flow problems.

How to make a statement of cash flows 📜

1. Pick a reporting period.
2. Use the net income from the same reporting period to calculate your operating cash flows (it can be found in your income statement).
3. Calculate operating cash flows – Add your depreciation and amortization costs, as well as other non-cash expenses, back to the net income + deduct accounts receivable and inventories from it.
4. Determine your cash flows from investing activities – Sum up all the cash collections resulting from the disposal of non-current assets (e.g., proceeds from sales of marketable securities, sale of equipment, etc.) and deduct any spending on the same kind of assets (e.g., purchase of marketable securities, property acquisition, etc.).
5. Do the same for your cash inflows and outflows related to financing activities.
6. Determine the net increase or decrease in cash flows – Sum up your cash flows from the three types of activities. The resulting figure will show how much money your company lost or earned within the current reporting period.
7. Compare the obtained cash flow to your result from the previous period to evaluate the change.
8. Use the ending cash balance from the current report as an opening cash balance for the next reporting period.

3.    Balance sheet ⚖️

A balance sheet is a comprehensive overview of an organization’s total assets and the way they are utilized and financed. It demonstrates the book value of a company, which amounts to total assets minus total liabilities.

Here are the three main terms you need to know when making a balance sheet:

• Assets – These are all the valuable resources a company owns, including the things that can be converted into cash within a year (aka current assets) and longer-term investments that a business doesn’t plan to convert into cash in one year (aka non-current assets).
• Liabilities – Everything that a business owes to its employees, suppliers, creditors, and other stakeholders is a liability. This includes taxes, payroll, accounts payable, debt payouts, etc. Liabilities can also be current and non-current depending on how soon they are due (within one year or longer).
• Equity – It is the net worth of an organization, which equals the value of all assets minus liabilities. It shows how much money would be left for shareholders in case all assets are sold and liabilities are settled.

Uses and importance ❗

All in all, a balance sheet reveals how many organizational assets you have in contrast to liabilities. This helps to comprehend the overall financial standing of your business, evaluate its financial health and promptly troubleshoot the identified problems.

Besides, investors can use balance sheets to understand if your company is worth investing in, how their money will be used and whether it will bring any profit.

How to make a balance sheet 📜

1. Select a reporting period.
2. Record your assets – Write down your current assets (e.g., cash and cash equivalents, accounts receivable, etc.) and non-current assets (e.g., property, goodwill, etc.) in two separate sections of the report. Calculate subtotals for both and then figure out the grand total.
3. Record liabilities – Divide them into current liabilities (e.g., accounts payable, short-term debt, etc.) and non-current liabilities (e.g., long-term debt, lease obligations, etc.). Again, calculate the subtotals for both liability categories and make the total.
4. Identify shareholder’s equity – Reserves, retained earnings, and share capital (common and preferred shares) are the items commonly found in this part of balance sheets.
5. Check if your balance sheet is balanced (it must always be!) – Total assets should match the liabilities plus shareholders’ equity. And equity must equal assets minus liabilities. If the figures don’t meet, there is an error in your report.

Pro tip: Is it your first time creating a balance sheet? A good report template can make the job much easier for you! Don’t hesitate to download our free balance sheet template from this post and find a bit more information about this vital accounting report there.

4.    General ledger 📒

A general ledger is a record of all the financial transactions that have taken place within a company. This includes everything from sales and expenses to investments and loans. Essentially, anything that affects the financial bottom line of a business will be recorded in the general ledger.

The general ledger consists of ledger accounts – the records of the different types of transactions. For each kind of transaction, you’ll need to create a separate ledger account:

• Assets – Cash, accounts receivable, inventory, and other property owned by the business.
• Liabilities – All of the money that the company owes, such as to suppliers, creditors, and employees.
• Equity – The owner’s investment in the business, as well as any retained earnings.
• Revenue – All of the money that the company earns, such as from sales or services.
• Expenses – All of the money that the company spends, such as on rent, salaries, and supplies.

Uses and importance ❗

A company’s financial statements are derived from the information contained in the general ledger. The balance sheet, for example, is created by taking into account all of the assets and liabilities that are recorded in the ledger. The income statement, meanwhile, reflects the revenue and expenses that are detailed therein.

All in all, the general ledger plays a vital role in ensuring the accuracy of a company’s financial statements. Therefore, it is important to keep it up-to-date and error-free.

How to make a general ledger 📜

1. Gather your financial data – Make a detailed list of all your financial transactions. You may use accounting software to simplify the process or keep your records manually in a spreadsheet.
2. Organize your data – Create separate columns for each type of transaction, such as sales, expenses, and payments. Then, within each column, organize your data by date.
3. Create ledger accounts.
4. Enter your data into ledger accounts – Transfer the data from your spreadsheet into the corresponding ledger account. Be sure to include all relevant information, such as the date, amount, and description of each transaction.
5. Balance your ledger accounts. This step is important in ensuring accuracy in your financial statements. To balance an account, total all of the debits and credits and make sure they match.

5.    Accounts receivable aging 💸

An accounts receivable aging report is a list of all outstanding invoices from customers, organized by their due dates.

The report categorizes invoices based on how long they have been outstanding (i.e., typically in 30-day intervals) and includes the following information:

• Invoice number
• Customer name
• Date of invoice
• Amount due

Uses and importance ❗

Accounts receivable aging can be used to identify potential issues with collections and develop strategies for improving cash flow. In other words, by tracking which customers are slow to pay, businesses can take steps to improve their collections process and get paid more quickly.

 How to create an accounts receivable aging report 📜

1. Gather all of the relevant data for your report – This includes customer invoices, payment records, and any other relevant documentation.
2. Organize your data – Begin by sorting your invoices by the date they were issued. Then, create a separate section for each outstanding invoice.
3. Calculate the age of each invoice – To do this, simply subtract the date of the invoice from the current date. This will give you the number of days (or weeks, or months) that each invoice has been outstanding.
4. List all of the outstanding invoices in chronological order, from oldest to newest. Then, include the age of each invoice next to its listing.
5. Use your report to prioritize collections – Focus on the invoices that are oldest and closest to becoming overdue. Then, work your way down the list until all of the outstanding payments have been collected.

Pro tip: Collecting the data on accounts receivable is effortless with specialized invoicing software. It lets you keep an accurate record of all your payment data. Plus, it helps to create invoices automatically in a matter of seconds and, thus, saves a ton of time.

Check out this list of the best invoicing software for small businesses to start exploring your options.

6.    Accounts payable aging 💳

An accounts payable aging report is a list of all the outstanding invoices you need to pay, organized by their due dates.

Just like accounts receivable aging, this report categorizes invoices based on how long they’ve been outstanding. Besides, it contains the following information:

• Invoice number
• Vendor name
• Date of invoice
• Amount due

Uses and importance ❗

By tracking outstanding invoices, it’s easy on top of payments, prioritize them, and avoid late payment fees. In addition, the report can be used to track spending and identify areas where costs can be reduced. Then, you may use this information to negotiate payment terms with suppliers.

How to create an accounts payable aging report 📜

1. Collect the necessary data, including invoices, credit memos, and other documentation.
2. Sort the data by vendor and invoice date. This will help you see which invoices are overdue and how much each vendor is owed.
3. Calculate the days outstanding – Subtract the invoice date from the current date. This will give you a good idea of which invoices are past due and how long they’ve been outstanding.
4. Review the report – Once you’ve created the report, take a look at it to see if there are any issues that need to be addressed: Are there any invoices that are excessively overdue? Are there any vendors who are consistently late with payments? If so, you’ll need to take action to remedy the situation.

7.    Statement of retained earnings 💰

A statement of retained earnings is a record of the portion of a company’s profits that are not paid out as dividends but are instead reinvested back into the business.

The main components of the report are as follows:

• Beginning retained earnings – The balance of retained earnings at the beginning of the reporting period.
• Net income (or loss) – The amount of profit or loss that the company generated.
• Dividends – The amount of money that was paid out to shareholders in the form of dividends.
• Ending retained earnings – The balance of retained earnings at the end of the reporting period.

Uses and importance ❗

The statement of retained earnings can be used to help assess a company’s financial health and performance over time. It shows how a company is using its profits and provides evidence for improvement.

For example, if a company has a healthy and steady retention rate, this means it’s reinvesting its profits back into the business, which helps to fuel future growth. Yet if the earnings retention rate is low, the company may be paying out too much in dividends and not reinvesting enough into the business, hampering its further development.

How to create a statement of retained earnings 📜

1. State the beginning balance of retained earnings – If this is the first time you’re preparing this statement, then the beginning balance will be zero.
2. Calculate the net income or loss for the period – This figure comes from the company’s income statement.
3. Record all the dividends that were paid out during the period.
4. Calculate the ending balance of retained earnings – It is equal to the net income or loss for the period, minus any dividends paid, plus the beginning balance of retained earnings.
5. Review the statement and make sure that all of the information is accurate. Once you are satisfied with the statement, you can then share it with shareholders and investors.

Conclusion

So there you have it: the seven essential accounting reports you need to keep an eye on. They help to better control your business performance, identify financial risks early on, and get informed for better planning and decision-making.

To create correct accounting reports yourself, simply follow the instructions provided in this post, and make sure your pre-accounting data is accurate and on point.

actiTIME can readily assist you in collecting a portion of this essential reporting data. Find out how to track billable time and staff-related costs with its help and sign up for a free online trial to see actiTIME in action firsthand.