Financial Reporting And Analysis

Written by Patricia Tunstall
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Financial reporting and analysis are two of the fundamental functions of an accounting department. They are far removed from bookkeeping in that the end product is a complex set of interrelated statistics that should reveal the financial health of the business. Whether issuing an internal report for management or the annual report for the Securities and Exchange Commission (SEC), accounting departments have a serious and complex responsibility.

Internal analysis of operating earnings or cash flow might be requested by management at any time in order to determine the best course to take in the next week or month. If sales are decreasing, financial reporting and analysis can pinpoint the causes and suggest corrective action. These internal reports are often distributed on a need-to-know basis because of the proprietary information revealed in them.

Public Reporting

On the other hand, the grand finale of the fiscal year is the production of the legally-required financial report that is supposed to inform shareholders, consumers, and the SEC just how the business earned its income and how it spent it. The income statement reports the company's sales and expenses, and ends with net income, or bottom line profit.

The cash flow statement analyzes inflows and outflows from operating activities--cash inflows from sales and cash outflows from expenditures. A second category is investment activities--cash inflows from new assets and cash outflows from selling off old assets. The third category is financing activities--cash inflows from borrowing money and cash outflows for paying off debts and distributing profits to owners. The balance sheet summarizes the assets and liabilities of the business.

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