Financial statements serve mainly two purposes for a small business. Firstly, they keep you informed about your day-to-day financial transactions, profit and loss, cash flow, etc. Carefully crafted financial reports also help attract funding from your prospective investors by providing them a clear picture of your company’s current financial status, past records and future prospects. Thanks to cloud accounting services, nowadays you can quickly create different types of financial statements for your small business. Let’s take a close look at three most important types of small business financial reports.  

Income statement 

This statement projects your profit and loss for a given period – hence also known as profit and loss statement. This statement enables you know your gross profit in a month or year or quarter. Gross profit is calculated by subtracting your total sales from the total cost incurred for buying or manufacturing the sold products. The statement also shows your net profit calculated by subtracting total operating expenses from the gross profit. You can prepare income statement for several months and compare the numbers to gain insight into your company’s financial performance over the past few months.

Balance Sheet

It is also important to prepare a balance sheet, which provides an overview of the assets and obligations of your company at this point of time. The statement usually includes details about your current assets, fixed assets, and short-term and long-term liabilities. If your company has more assets than liabilities, that’s a good sign. This will help you win funding from investors as well.

Cash Flow Statement

This statement helps you know how much money is coming into your business and where the money is going. Cash flow statements are made for a given time period, usually for one year or five years. Just because your income statement looks positive doesn’t mean you have enough cash in your bank account. Cash flow refers to the actual amount of liquid cash in your company’s bank account. It is calculated by subtracting your cash inflows with your cash outflows.

Preparing financial statements for small business

Until recently, preparing financial statements was a daunting task for business owners and accountants. Now you can do the job easily and quickly, using accounting service and software like Xero. Without a doubt, there are countless benefits of cloud accounting. All you need to do is to keep your expenses and revenues up-to-date in a cloud accounting software program. The system will automatically generate many different types of financial statements, including cash flow projections, income statements, and balance sheets. One good idea would be to seek professional help from a Xero partner. Xero produces more than 40 types of financial reports and enables you to use various report settings. For instance, you can compare income statements for different time periods on the basis of accrual accounting or cash accounting. Not forgetting, Xero also handles multiple currency accounting. You can also filter by tracking, show or hide decimals, and edit formulas when creating a new income statement.  

Cloud accounting helps you create and analyze small business financial statements faster than ever before. Most importantly, you don’t have to be a skilled and qualified accountant to be able to generate the necessary reports in Xero.