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The Top 5 Important Accounting Reports for Small Businesses

When it comes to small business accounting, many people do not know how important it is to the state of their business. Accounting reports provide insights into the past, present, and future of any business. It is critical to have an annual report of financial data so that you can run your company more effectively, analyze operations, and make better business decisions.

There are many financial reports, but here are five of the most essential accounting reports that you should be reviewing on a monthly or annually basis to understand the financial performance of your company.

1. Profit And Loss Statement

One of the most important report for any business is the Profit and Loss Statement or Income Statement or Statement of Operation. In this report, a business owner can see the total revenue of the business, expenses incurred, net income or loss over a specified period of time.

Small business owners look at this report every other month to evaluate profitability. It also helps to get a good idea of trends and compare results they are getting now with results from the same period in the prior year on a month-by-month basis. This will show clearly what’s working, and what isn’t, and help you attend more to the aspects of the business that is generating more returns.

2. Balance Sheet

With a Balance Sheet, a small business can get a snapshot of what it has (assets) and is owing (liabilities) at any given time. Assets for small businesses usually include bank accounts, accounts receivables, and possibly an investment account. You will also find on a Balance Sheet assets like property, equipment, computer, and other physical and intangible properties. Things like business loans, credit cards, and any other thing owed are regarded as liabilities.

You can identify trends and make better financial decisions by keeping a Balance Sheet. Lenders also use it to determine the creditworthiness of a company.

3. Cash Flow Statement

The Cash Flow Statement is a summary of the total cash inflows and outflows of a business over a period of time. The Cash Flow Statement is different from the Profit and Loss Statement and the Balance Sheet because it takes into account only the activities regarding cash money. It does not account for non-cash activities like sales, credit purchases, or depreciation.

There are three sections in a Cash Flow Statement, which are operating, financing, and investing activities. These sections help to present clearly the areas of the business that are generating and using the most cash. Cash Flow Statement can also be used to estimate future cash flow, which helps in preparing budgets and in decision making.

4. Accounts Receivable Aging Report

Most accounting systems can generate an A/R Aging report which categorizes outstanding accounts by length of time overdue (1 to 30 days, 31 to 60 days, 61 to 90 days, and 90+ days overdue).

Poorly managed accounts receivable is one of the most common sources of cash flow problems of small and medium-scale businesses. If you have more cash tied up in receivables due to delinquent accounts and slow-paying customers, the less cash will be available to run the business. When you review the A/R Aging Report, you can refuse additional service or shipment requests to defaulting customers to ensure your business is not being taken advantage of.

If your business is having problems with collecting on accounts receivable, it might be necessary to have a weekly review of this report to help identify past due accounts. On identification of these accounts, collection procedures can be initiated immediately to boost business cash flows.

5. Budget Vs. Actual Report

Just like the name suggests, the Budget Vs. Actual report compares the results mostly from the Income Statement with the amounts budgeted at the beginning of the period in review. With this report, the reader can see how closely the revenue generation and spending of a company meet their financial projections in the budget. This enables the business to see where overspending or under spending has occurred and make better budgeting for those areas in the future. Also, identifying areas where spending did not meet budgeted amounts helps point to areas that can be improved upon by hiring additional personnel or investing in efficient equipment.

A Budget Vs. Actual report should be compiled whenever budgeting occurs, and reviewed alongside the financial statements to determine areas of the business that are not meeting projections and should be addressed.

Monday January 10th, 2022


The AAT Accounting qualification provides the perfect pathway to a successful career in finance and accountancy. We are one of the UK’s leading AAT providers and offer students a unique mix of practical expertise with vital theoretical teaching. Whether you’re a school-leaver, re-training or returning to work, our courses offer the ideal route into accountancy.

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