Creating financial reports accurately and quickly is one of the keys to success in financial management, therefore, it is very important to development and planning in the long term.
Financial report preparation is mostly complicated, especially if those doing it have no background in accounting at all. To be effective and efficient, here are some quick tips for creating financial reports that you should know!
What is a Financial Report?
Before we go into quick tips for creating financial reports, it’s good that we first know what a financial report is. A financial report is a formal summary of an entity’s financial activity over a specific period of time.
In a financial report, a list of detailed financial information that is relevant and important to stakeholders such as individuals, business owners, financial managers, investors, lenders, and so on is usually presented.
The Function of a Financial Report
A financial report has the main function of being a source of relevant and accurate information about the financial condition and performance of an economic entity, for example, an individual, company, organization, or government. But is there any other function?
Evaluation of Financial Performance
Financial reports are used to evaluate financial performance. A financial report contains information on income, production costs, net profit, and losses experienced over a specific time period.
With that much information, it allows us to assess the extent to which an entity (individual, company , organization, or government) has managed its finances precisely and effectively.
Monitoring and Controlling
A company makes financial reports to serve as a reference for monitoring the financial performance of the business. They compare financial data to the arranged plan and budget to determine if it’s correct or if there is a problem.
If there is a problem, control measures can be taken directly by carrying out corrective actions such as cutting some expenses that are not considered too important.
Transparency and Accountability
Financial reports are important records to openly inform stakeholders about financial conditions. For example, in a company, a financial report is important for directors and shareholders.
Creating a Financial Plan
To plan something, especially something linked to finance, historical data in the form of a financial report is required. Information on cash flow, revenue growth, and financial situation can assist stakeholders in making future plans.
Types of financial report
There are four types of financial reports that we need to know: cash flow reports, profit and loss reports, balance sheets, and capital changes.
1. Cash Flow Report
Report that provides an overview of cash flow in and out over a specific time period. This report goes into more detail about the sources of incoming money and how it’s used.
2. Report on Profit and Loss
A financial report of an entity that records revenue and expense performance to inform whether its financial condition is profitable or not.
Own revenue often comprises sales, interest, dividends, rent, and many more. While costs include production costs, salaries, and loan interest.
3. Report on The Balance Sheet
The balance sheet describes the position of the assets or wealth of a company over a specific period of time. Listed in the information balance sheet report are the company’s debt, assets, company liabilities, and shareholders.
4. Report on Capital Changes
A capital change report is a kind of financial report that contains information about changes in the owner of capital or shareholders over a certain time period.
Quick tips for creating a financial report for the company
After knowing the definition, types, and functions of financial reports, we now need to know how to swiftly create a financial report, particularly in a company.
1. Record Every Transaction in a Journal.
The first thing to do is record every transaction in a journal. Transactions that must be recorded are obviously related to cash and company operations, for example, purchases, rent, sales, and other important transactions.
2. Enter the Journal into Ledgers
Once recorded, the journal is then inserted into the ledger. The ledger is the main thing and important part of creating financial statements. The Ledger summarizes all financial transactions that serve as the basis for the preparation of the balance sheet and profit and loss statement.
3. Create a Trial Balance.
The ledger that has been made is then compiled into a trial balance. A trial balance was created to ensure that the total balance in the debit column equals the entire balance in the credit column.
If it is the same, then the ledger that has been created thus far has been correctly made.
4. Create an Adjusting Journal.
At the end of the recording period, there are generally transactions that have not been recorded, these transactions are then entered into an adjusting journal. The objective is to compare the estimated balance with the actual balance condition before adjusting the journal.
5. Create a Worksheet
The work sheet, also known as the working paper, contains data from the adjusted trial balance as well as the adjusted journal balance.
6. Create a Profit and Loss Statement.
After the data in the worksheet has been created, we may determine whether the company’s financial condition is profitable or not. The report must be made in the income statement according to accounting standards.
7. Create a Closing Journal While Making Financial Reports
Closing journals are usually created at the end of an accounting period. This journal was constructed with the aim of adjusting the balance account so that the total is zero. If the balance is zero, we can see the actual condition of the capital account balance at the end of the period.
8. Create a Trial Balance After Closing.
The last step that we have to check between debit and credit is whether they are balanced or not. To check it, it is necessary to create a trial balance after closing.
A Practical Way of Creating Financial Reports Using Applications
Those are some quick tips for creating a financial report. However, some people might think that the preceding stages are excessively lengthy due to the need for manual input.
There is actually a faster way to utilize AI technology. The use of AI technology in the creation of financial reports may be found in Fintelite’s OCR+ product .
OCR+ is integrated with AI technology that can reduce the processing time required for input, verification, and categorization of transactions in financial reports. Because OCR may convert physical or digital document transaction proof into editable text data.
