Bookkeeping reports not only provide owners with the historical data but can also demonstrate how their company performs, what expenditures it incurs, whom it still owes money to, and in what direction its expenditures evolve.
A more effective strategy for analyzing bookkeeping information is to look at reports on a consistent basis during the year. In case the company uses outsourced bookkeeping services in USA, reviewing bookkeeping reports will help make financial data easier to comprehend and transform bookkeeping into a management tool. Regardless of whether an owner manages his/her own bookkeeping or he/she hires outsourced bookkeeping services, he/she needs to be aware of reports that are relevant and what conclusions can be made from them.
Why Bookkeeping Reports Matter for Business Owners
The financial statements present the data entered into the accounting system in a way that makes sense to management.
Some of the queries they can assist with are:
- Is the enterprise generating profits?
- How much cash do we have?
- Are our customers making timely payments?
- Which costs are going up?
- How much do we owe suppliers?
- Are our actual outcomes meeting expectations?
Reports Will Be Most Effective If Used Consistently
If a report is looked at just once a year, it can inform one about what happened, but it does not provide an owner with much chance to react to changes that happen.
Consistent monitoring of some selected reports will be more helpful.
1. Profit and Loss Statement
The profit and loss statement, also known as the income statement, is one of the most critical documents for any entrepreneur.
In most cases, it will include:
- Revenue
- Cost of goods sold
- Gross profit
- Operating expenses
- Net income or loss
Insights from the Profit and Loss Statement
Using this statement, entrepreneurs can see whether their business is making profits considering all their costs and expenses.
It is possible that revenues grow but the net profit is falling, meaning that one of the costs is growing faster than the sales: salaries, advertising budget, materials, rent, etc.
Checking the document every month will allow entrepreneurs to notice such things.
2. Balance Sheet
The balance sheet shows the current financial state of the business at a particular moment of time.
In most cases, the following categories can be found there:
- Assets
- Liabilities
- Owner’s equity
Assets can be represented by cash, receivables, inventory, machinery, and other business resources.
Liabilities can be loans, credit card balance, accounts payable, and other liabilities.
Why Owners Should Review the Balance Sheet
Performance during a certain time frame is reflected in the profit & loss statement, while the balance sheet reflects the assets and liabilities of the firm on a certain date.
A profitable business may have considerable liabilities and even insufficient liquidity; therefore, the balance sheet is a crucial aspect of routine financial analysis.
3. Cash Flow Statement
The cash flow statement records the flow of cash within the business.
Cash activity is usually broken down into:
- Activities in the operating process
- Activities in investing
- Activities in financing
Profit Does Not Necessarily Indicate Cash Flow
Profitability may be present in a business that does not have enough cash.
In this case, for instance, when customers have not paid their invoices yet, the income can be reported although the cash itself has not come in.
The cash flow statement enables owners to see how their business activity influences the flow of cash.
4. Accounts Receivable Aging Report
An accounts receivable aging schedule indicates amounts that the business is owed by its customers and how much time has passed since those balances occurred.
It usually divides accounts receivable into different groups as follows:
- Current
- 1 to 30 days past due
- 31 to 60 days past due
- 61 to 90 days past due
- Over 90 days past due
Importance of Tracking Receivables
Outstanding invoices influence the cash flow and may become the subject of concern regarding collections.
If a considerable portion of the balance is significantly overdue, an owner should analyze terms of payments, processes of collections, or individual clients.
Regular review makes it easier to identify slow-paying customers before balances become more difficult to collect.
5. Accounts Payable Aging Report
The Accounts Payable Aging Report gives the other side of the picture. The report highlights the money that the business owes to its vendors and other suppliers.
It will help the owners know:
- Future Payment Commitments
- Outstanding Bills
- Vendor Accounts
- Short-Term Cash Needs
Utilize A/P Data for Cash Management
Having knowledge of the bills due and their timely payments helps the management manage their cash needs.
The company might have enough cash now but could have big vendor payments coming up in the next few weeks.
Consistent A/P review brings more clarity regarding these payment commitments.
6. General Ledger Report
The general ledger offers detailed information on transactions recorded in each account.
It can offer transaction-level details behind the accounts reported on financial reports.
Why Review the General Ledger?
The general ledger can prove helpful in investigating anomalies by owners and accountants.
For instance, where there is an abnormal increase in a certain expense account, analyzing the underlying transactions can highlight the cause of the problem.
Thus, it becomes helpful when there is something odd in the financial reports.
7. Expense Report
An expense report categorizes the expenses of a business.
Based on the accounting system, owners will be able to see expenses related to:
- Payroll
- Marketing
- Travel
- Software
- Rent
- Insurance
- Professional services
- Office expenses
- Utilities
Notice Any Changes in Spending Trends
Consistent review of the expenses may highlight any areas where expenses have increased more than anticipated.
For instance, multiple small software subscriptions might constitute a significant expense.
The consistent review will enable owners to establish whether or not the expenses still make sense for the business.
8. Bank Reconciliation Report
The bank reconciliation report will help owners ensure that their accounting records match their banking activities.
Bank reconciliation may uncover:
- Missed transactions
- Duplicate transactions
- Wrong amounts
- Undetected fees
- Unreconciled transactions
- Other differences
Bank Reconciliation Ensures Accuracy in Financial Reporting
As the financial reports depend on the accuracy of the accounting records, the consistent bank reconciliation will help to instill confidence in the cash balances reported.
This is why reconciliation needs to be seen as a consistent bookkeeping procedure, not just an exercise in catching up.
How Professional Bookkeeping Supports Better Reporting
Accurate records must be kept in order to maintain accurate accounting.
The transactions should be recorded accurately, accounts should be reconciled, invoices should be managed, and expenses should be classified accurately.
Outsourced bookkeeping services from outside can help businesses grow by providing assistance in these areas.
Services of Outsourced Bookkeeper
Bookkeeping assistance could include the following, depending on what is required:
- Recording of transactions
- Bank reconciliation
- Credit card reconciliation
- Accounts payable
- Accounts receivable
- Monthly close
- Reporting of finances
This enables the business owner to get organized finance information without being involved in all bookkeeping activities.
Choosing the Best Outsourced Bookkeeping Services
Businesses searching for the best outsourced bookkeeping services should consider how the provider handles reporting as well as basic bookkeeping.
Questions to ask potential vendors:
- What reports will you provide?
- How frequently do you provide reports?
- Who reviews the reconciliation reports?
- How do you handle strange transactions?
- Are custom reports an option?
- What is the month-end close-out time frame?
- What accounting software do you use?
Reporting Should Be Customized To The Company
A company that deals with inventory, several locations, or many accounts receivable might have different needs for reporting than a professional services firm with simpler accounting.
The bookkeeper needs to know what reporting your company needs.
When Should a Business Hire a Bookkeeper?
Some owners can manage basic bookkeeping themselves, particularly when transaction volume is low.
However, it may make sense to hire a bookkeeper when:
- The books are always late
- Accounting books are not balanced on time
- It is hard to make the statements
- Transaction flow is rising
- Tax preparation is a cleanup job
- Too much time is being spent on bookkeeping by the owner
- The company has become more complicated in finance
Bookkeeping by professionals will save time for the owners and at the same time will increase the consistency of financial reporting.
Analyzing these financial statements will be an opportunity for the owners to recognize the trends and solve any issues related to finances before they become worse. For the companies requiring extra assistance, outsourced bookkeeping in USA by The Fino Partners can keep the financial records and reporting process that provide these financial insights.
The purpose is not to be an accountant. The idea is to understand which numbers are important, analyze them timely, and use the financial data.
