Dealing with your funds and keeping them growing can be a demanding endeavor. For CFOs, managing a small business’ financial reporting and analysis is among the founding blocks of a company’s survival, especially in the post-pandemic period.
The favorable prospects of your business funding is an important facet to making your business flourish. For 2021, it remains to be seen how finance leaders will navigate the challenges of a vulnerable economy today.
Producing accurate and transparent financial reports gives you a clearer picture of the company’s financial standing, and how you can prepare for the possible pitfalls you may encounter along the way.
The Financial Report
A company financial report is a collective set of a company's financial statements which discloses their overall financial position. It provides a historical and in-depth look at a company’s revenues, investments, assets, and cash flow.
CFOs and financial management services providers are mindful of their financial reports as these documents reflect the actual financial status and performance of the firm. Through these compiled reports, businesses can prove their ability to pay off debts once their funding requests are approved.
What are financial reporting standards?
The Generally Accepted Accounting Principles (GAAP)
As expected, norms and standards in business financial reporting could be very complex, especially if companies follow a diverse set of accounting formulations. This is where the GAAP comes in handy.
The Generally Accepted Accounting Principles or GAAP is the most authoritative set of financial reporting rules used across different business verticals. For American businesses, the GAAP is the most commonly-used accounting standard. Unless a company clearly states that it has adopted a different set of accounting rules, it is safe to assume that the foundation of its financial reports are based on the GAAP.
In the event that a company decides to deviate from the rules set in the GAAP, it is the company’s responsibility to cite which accounting rules and standards it has adhered to.
The FASB and the SEC
Aside from the GAAP, there are other standards used to create business financial order and uniformity among different business industries. These include the Financial Accounting Standards Board or FASB and the Securities and Exchange Commission or SEC.
The FASB is a strong point of authority in updating and implementing GAAP standards among private companies. Meanwhile, the SEC controls accounting and federal accounting standards for companies with publicly-traded securities.
Financial reporting vs. Tax reporting
In dealing with the business’ finances, there are circumstances where you become inevitably confused with financial reporting and tax reporting. So what are the differences of the two?
Generally, financial reporting deals with the cash flow and the money going in and out of your bottomline. The insights on this facet of accounting provides CFOs with opportunities to identify which parts of the business earns or loses money. The tax reporting, on the other hand, is generating files and records in settling state and federal taxes through figures given by the financial reports.
Financial reporting follows GAAP standards to reflect accurately all financial transactions of the business while the Internal Revenue Service (IRS) is the office responsible for creating the tax system to impose taxes against earnings or the taxable income.
Adopting an array of sturdy business accounting rules and regulations makes the process of generating and interpreting financial documents easier. But even so, a clear understanding of your small business’ financial reporting and analysis is still necessary to keep tabs on your financial standing up-to-date.
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