A financial report is a summary of a company’s current and historic accounting data that aids decision-making. It’s a requirement for any organization that wishes to obtain funding or a license. Creating a financial report requires careful planning and attention to detail to ensure that information is presented in an understandable way. It also needs to adhere to taxation, accounting and legal requirements, like Generally Accepted Accounting Principles (GAAP) in the US or International Financial Reporting Standards (IFRS) in other countries.
A basic financial report consists of an income statement, a cash flow statement and a balance sheet. The income statement compares actual sales revenue to budgeted revenue and highlights profit or loss for a given reporting period. The cash flow statement compares a company’s operating cash inflows and outflows, including the impact of financing activities (debt issuance or repayment) and investing activities (purchase or sale of equipment, property and other long-term assets). The balance sheet lists a company’s assets, liabilities and shareholder equity at a specific point in time, such as at the end of a quarter or year.
To create a financial report, you need to collect all relevant accounting information for the given reporting period, including sales invoices, purchase orders, expense receipts and bank statements. You must also review your chart of accounts and determine the starting and ending accounting balances for each account type, then reconcile those amounts with supporting documents to ensure accuracy. Then you must decide whether to use the indirect or direct method of calculating cash flows. The indirect method starts with net income reported on the income statement and subtracts non-cash expenses and adds back in operating cash inflows.