What Are Accounting Reports?

Accounting reports are reports that contain financial information derived from a business’ records, in order to summarise their financial status. There are many different types of accounting reports and they vary greatly in terms of purpose and comprehensiveness. Income statements, balance sheets and cash flow statements are all common types of accounting reports that you may have already heard of. 

Income Statements

An income statement shows the total revenue a business has earned during a period of time. It also details the business’ spending to show whether the business has made a profit or a loss. This is the most common type of accounting report you’re likely to encounter (also known as a Profit & Loss statement).

Stakeholders use income statements to assess how profitable your company is, and investors and lenders use it to determine risk.

Cash Flow Statement

Cash flow refers to the money that enters and leaves a business over a set period of time. Cash flow is not the same as profit; it’s possible to be in profit but run out of cash, or vice versa. If your business is a car then cash is fuel in the tank, and so cash flow statements are very important in ensuring that your business maintains a healthy bank balance.

Cash flow statements contain three sections: operating, financing and investing. This helps you to understand which areas of the business use the most cash and which generate it. This information can help you to improve your cash flow and continue to manage it well so that your business doesn’t run dry. 

Balance Sheet 

Think of a balance sheet as a snapshot of what your business owns and owes. It displays your assets, liability and equity.

Balance sheets are very helpful when it comes to identifying trends and making informed decisions. Creditors and investors will also be very interested in your balance sheet, since they use it to assess how much of a risk you are.

The above three reports should be prepared monthly so that you can understand the financial health of your business and monitor your KPIs. 

How Are Accounting Reports Prepared?

Accounting reports are created using information from a business’ accounting ledger and journals. If you’re sitting there thinking that creating all of these reports each month sounds like a lot of work, then you would be right. However, most business owners hire an accountant to handle this process for them, since professional accountants have the skills and expertise to create these reports swiftly and accurately.

Why Are Accounting Reports Important?

These financial statements are used by multiple parties for multiple purposes. Creditors use the information contained in these statements to assess how likely a business is to be able to repay their loan. Investors, meanwhile, use this information not only to decide whether or not they want to invest, but also the price that they are willing to pay per share. Furthermore, these financial statements are important when it comes to taxation and union bargaining.

Of course, these reports can and should be used internally, too, so that business owners are able to make well-informed and timely decisions regarding their finances. These reports can also be used to create future projections and for scenario planning.


Accounting reports provide insight into the financials of a company, help to track KPIs, and can be used to create projections which inform future decisions. They are also vital for a company’s ability to function efficiently and meet the needs of shareholders, creditors and unions. Ultimately, accounting reports are important not just in terms of making informed choices and preparing for the future, but also in ensuring the smooth running of day-to-day business operations.

For any help or advice on preparing Financial Statements, get in touch today on 01244 421206 or email enquiries@prosperbailey.com


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