A financial report is a snapshot of your business’s finances over a certain period, typically a quarter or a year. It combines information from different financial statements like the balance sheet, income statement and cash flow statement to show how your business is doing, including profits and losses. These reports are essential for tracking performance, budgets and guiding strategic planning. It also provides a way for stakeholders, investors and regulators to understand your company’s position and potential trajectory.
The first step in preparing a financial report is collecting and organizing data for the reporting period. This can include sales invoices, purchase orders, expense receipts and bank statements. You can use financial reporting software to organize this data or create a spreadsheet. Start by calculating the beginning and ending accounting balances of all assets, liabilities and shareholders’ equity for the reporting period. Afterwards, organize these data into separate sections based on their due dates (current liabilities are debts you expect to pay within the next year and long-term liabilities are those that will be paid more than a year from now).
Finally, prepare an income statement that shows your business’s revenues and expenses for the reporting period. It may help to split your expenses into direct and indirect costs for more clarity. Then, add up your gross profit and net income based on your accrual accounting method. Present your operating cash flow using either the direct or indirect method by adding up cash receipts and payments from operating activities, investing activities, and financing activities.