What Are The Important Financial Reports That Accountants Prepare?

When it comes to small business accounting, there’s a lot you need to know in order to make the most informed financial decisions. One of the best places to start is to understand the calculation of key financial ratios and their interpretation.

Before we dive in, let’s see why accounting is so important for businesses and why you need to hire a small business accountant Los Angeles can make things easier.

Why Is Accounting Important?

Accounting plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information which can be used in making business decisions.

There are three key financial statements generated by your records.

The income statement provides you with information about the profit and loss

The balance sheet gives you a clear picture on the financial position of your business on a particular date.

The cash flow statement is a bridge between the income statement and balance sheet and reports the cash generated and spent during a specific period of time.

It is critical you keep your financial records clean and up to date if you want to keep your business afloat.

Here are a few things that a small business accountant Los Angeles does for your business, big or small!

Financial Statements Accountants Take Care Of

The Balance Sheet

The balance sheet provides a look at your company’s financial position at a specific point in time. This financial statement is made up of three components: assets, liabilities and shareholders' equity. The assets include anything the company owns such as cash, equipment, property or inventory. 

Liabilities include accounts payable or any type of payment made on a long-term loan. The owners' or shareholders' equity refers to what’s left over after the amount of liabilities is subtracted from the amount of assets.

Assets are listed on the left side of the balance sheet. Liabilities and equity are listed on the right side.

The Income Statement

As the name suggests, the income statement outlines your profitability over a period of time such as a month, quarter or year. It’s also known as the profit and loss (P&L) statement and contains the following components:

• Sales encompass total revenue generated as well as the cost of all goods sold.
• Operating expenses include items such as advertising and rent for office space.
• Non-operating expenses can include a one-time purchase and interest on any debt taken on by the company.

Statement Of Cash Flow

A cash flow statement provides a picture of where a company's cash inflows and outflows.

Analyzing your cash position and anticipating your cash flow needs are extremely important small business accounting tasks that must be done on a regular basis. If you have any doubts your small business accountant Los Angeles can help you with that.

Remember, cash is king. Your business could be recording a profit each quarter but may be experiencing a cash crisis because you are having a tough time converting assets such as accounts receivables into cash. You need cash to pay things like salaries and rent. Unfortunately, you can’t pay in “profit.”