What Are Accounting Reports? (Definition and Types)

By Indeed Editorial Team

Published 26 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Accounting reports help provide insight into a business's financial status and are essential for making business decisions. Professionals, including managers and company leaders, may use these reports to make informed decisions regarding the company. Potential investors and banks may also review accounting reports to decide if they will invest in or loan businesses money. Learning more about accounting reports and how they are compiled may help you succeed in an accounting, business or financial role.

In this article, we explore what an accounting report is, explain why they're important, show you how to prepare them and discuss some common accounting report formats.

What are accounting reports?

Accounting reports are a collection of financial data derived from an organisation's accounting records of transactions, known as journals. They can be brief, complex or custom-made for a specific purpose, such as a detailed analysis of costs within a particular region or product line. These reports come in standardised formats to allow objective financial analysis by business owners, executives, potential investors or tax authorities. As of August 2022, financial reports, including accounting reports, are to follow the requirements set by the Corporations Act 2001, which is regulated by the Australian Securities and Investments Commission (ASIC).

Some types of reports in accounting are:

Income statement

An income statement, also known as a profit-and-loss statement, shows the company's revenue and expenses over a specific period. The income statement shows whether the organisation has made a profit or a loss over the period. The data is drawn from transactions recorded in the organisation's journal accounts and used to calculate four important values by which financial performance can be judged: revenue, expenses, gains and losses. Revenue includes both cash and non-cash receipts (e.g. sales on credit) and expenses includes both cash and non-cash payments.

Cash flow statement

A statement of cash flow shows the movement of money into and out of a business. It includes cash flow related to operating, investing and financing activities. The cash flow statement helps a company prepare for future expenses or adjustments in the economic climate and is important for investors and creditors to determine how much cash is available to fund a company's operating expenses and pay off debts. Typically, a company prepares this financial statement at the end of an accounting cycle and data for a cash flow statement comes from the balance sheet and income statement.

Balance sheet

A balance sheet shows an organisation's financial position at a specific point in time. It includes balances for assets, liability and equity. The balance sheet allows the business to evaluate its financial reserves and liquid assets and helps potential investors or lenders see the company's financial state. Typically, a business's accounting cycle is over 12 months, and the balance sheet is prepared at the end of each cycle. Like an income statement, data for a balance sheet comes from the ledger.

Related: 12 Commonly Used Accounting Principles

Why are accounting reports important?

Accounting reports enable a business to understand its financial health and allow management to make essential business decisions. These reports can provide profitability information for day-to-day operations or a specific business segment. Other reasons why these reports are important are that they help companies to:

Maintain a budget

Reports can help ensure that different business strategies and activities align with the company's budget. Budget projections typically incorporate planning and enacting a fiscal plan for a business's future endeavours. Managers may use a special type of accounting report called a budgeting report to compare previously estimated budget estimations to a company's current financial statements, outlining the actual results achieved during a specific period.

Comply with regulations

Companies are required by the Corporations Act to prepare audited annual financial reports every year. Having organised reports can help companies calculate the correct taxes to pay the Australian Taxation Office. Also, having accurate and thorough reports can help the company meet legal and regulatory obligations outlined for companies.

Related: Accounting Skills: Definition, Examples and Tips to Improve

Provide investors and lenders with information to make their decisions

Accounting reports help demonstrate the investment potential to investors and lenders. These reports can assist businesses in their financial projections or illustrate the current financial capacity of a company. Investors may study the cash flow or income statements to determine if the organisation is generating income consistently and assess the risks and benefits of investing in the business. These financial statements also provide the information necessary for investors to make valuations and determine a company's creditworthiness, allowing them to set price targets and decide if the company's stock is fairly valued.

Related: 13 Accounting Skills to Include in Your Resume

How to write an accounting report

Depending on your role, you might be responsible for creating an accounting report. The exact steps can vary depending on the type of report you're creating and the company you work for, but here are some steps you may follow:

1. Determine if the report is for an internal or external audience

Internal financial reports involve presenting financial information to management to aid in planning a business's financial direction. In general, internal reports are more detailed to provide upper management with enough information to help in the decision-making process. Internal financial reports provide information on operational activity and employee performance, which management can use to make decisions regarding promotions, deployment or layoffs. These statements also allow the company to track customer behaviour or credit information.

External reports provide financial information to potential investors and shareholders to aid in their decision to make investment decisions. These reports rarely contain confidential information about the company unless specifically requested. The reports provide interested parties with information about the financial health of a company. They also help publicly traded companies provide necessary information related to the finances and operations of the company.

Related: What Is Accounts Receivable and How Does It Work?

2. Compile your financial data and check the guidelines

During this stage, you can meet with your manager or the CFO and determine what type of information you need for the report. Also, check the latest ASIC guidelines to ensure you comply with the local regulations. Depending on your role, you may also collaborate with senior accountants or external accounting companies to ensure you're gathering the correct information. The type of data you assemble sets the tone of the report and may include:

  • Monthly income and expenditures

  • Financial milestones

  • Cash flow statement from operational, internal financing and external sources

  • Income tax disclosure

  • Profit and loss statement by department, team or job

  • Asset and liability evaluation

  • Shareholder equity breakdown

  • Profitability forecast

Related: What Is a Journal Entry In Accounting? (With Examples)

3. Prepare the executive summary

An executive summary is an overview of the essential points of the more extensive report, and it highlights any aspects of the organisation you'd like to inform investors, shareholders or employees about. The executive summary, typically written by the CFO or CEO, is usually around one to two paragraphs long. It includes enough information so the reader can understand the full report without the need to read the entire thing. Depending on your role, you may collaborate with a senior-team member to draft the summary, or you may write one yourself if you work in an executive position.

4. Write the accounting report

When writing the report, you may include facts and visual data, such as graphs, pie charts and tables. Try to make it clear and easy to understand so interested parties can quickly access the information. Make sure to support any statements with facts and include the methods you used to come up with these conclusions.

Often, the report may not be easy to understand for those not directly involved in the business, so calculations and financial statements typically include additional notes to avoid uncertainties. If there are space limitations, you can use an appendix section to explain further or add visuals at the end of the accounting report.

5. Summarise and conclude

A conclusion to the report can include both the analysis of the data and a summary of findings. It can also benefit to offer your readers any steps the business plans to take in the near future to meet financial targets in the following report period. Also, the conclusion can include any upcoming challenges and recommended plans to overcome these challenges. You can add additional references or reading materials for your audience interested to find out more about the business or your work on the accounting report.

Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed.

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