Accounting involves tracking financial transactions year-round and producing a report on the company’s finances. These reports are critical to filing taxes and establishing credibility with external users such as investors and lenders.
Writing an accounting paper requires accuracy because it can contain calculations. However, wordiness – in the form of passive voice, nominalization and unnecessary words – detracts from the effectiveness of an account.
Financial Statements
Financial statements are written documents that summarize a business’s financial results over a period. They include the balance sheet, income statement, cash flow statement and statement of owner’s equity. They are prepared according to specific and standardized accounting rules. These standards are designed to ensure that financial statements are fair representations of a company’s current status. Prospective investors and creditor institutions use them to assess the viability of a business.
The most important of the four financial statements is the balance sheet, which shows a snapshot of a business’s assets, liabilities and equity. It is also sometimes known as a statement of net worth or statement of financial position. The other essential financial statement is the income statement, which summarizes a business’s revenues, costs of goods sold, selling, general and administrative expenses, and income taxes for a reporting period. The final essential statement is the cash flow statement, which provides a breakdown of cash inflows and outflows during a reporting period.
Cash Flow Statements
Cash flow statements provide a more detailed look at how much cash is coming into and out of your business. They’re often used in conjunction with income and balance sheets to analyze a company’s liquidity and solvency. They classify cash inflows and outflows into operating, investing and financing activities.
For example, your operating activity section includes cash from sales of products or services and minus any non-cash items like depreciation expenses. This allows you to compare your operating profit (reported on your income statement) with the actual amount of cash that was received or used during a period.
The investing activity section of your cash flow statement lists the money your company receives from selling assets or paying back loans. It also includes any cash your company invests into new assets or purchasing stock. Finally, the financing activities section lists the money your company raises through debt and equity financing and the amounts paid out in dividends to shareholders.
Management Reports
Management accounting reports are used by business leaders to analyze operational performance and monitor different metrics within a business. These reports can be based on departmental data, like revenue and sales leads, or company wide metrics, such as budgets vs actuals or utilization.
Management reporting systems seek to standardize the collection and distribution of information in order to expedite the preparation of reports while improving their accuracy. These control systems automate low-value tasks, like data collection, to enable business users to focus their attention on high-value activities like analysis and identifying key trends.
Unlike financial reports, which must comply with GAAP and IFRS, the content and format of a management report can be customized according to internal requirements. To generate effective management reports, you must know which metrics and reporting formats are most relevant to your business operations and strategic decision-making needs. You must also understand which information you should include or exclude from your management reports to maximize effectiveness.
Financial Statement Analysis
Financial statement analysis reviews financial information found on the income statement, balance sheet and statement of cash flows to inform business decisions. Whether you’re a banker looking to determine a borrower’s ability to repay a loan, company management interested in budgeting for future growth or an investor wanting to evaluate the potential return on your investment, financial statements provide valuable insight into the health of a business.
Two common methods of analyzing financial statements include horizontal and vertical analysis. Horizontal analysis compares data over multiple periods, usually a year, to identify trends in individual line items of a financial statement such as revenue, cost of goods sold or net profits.
Vertical analysis converts data into ratios, comparing each individual item on a financial statement as a percentage of another item. For example, each line item on the income statement might be stated as a percentage of sales. This allows a business to quickly identify which accounts are growing and which are decreasing, and may point to areas for improvement or opportunity.Buchhaltung
