No matter the size of your business, whether small, medium, or large, all companies throughout Canada are obligated to create financial reports. These reports are required by law as a means for businesses to publicize their financial health. As a business owner, it is best to get ahead of your financial reporting to ensure this mandatory responsibility is completed accordingly.
These topics will help you understand more about financial reporting and it’s role in small business management:
- Where Do Financial Reports Come From?
- Why is Financial Reporting Important?
- What is a Trial Balance?
- What is a Reporting Cycle?
- What is Unearned Revenue?
- What is an Expense Report?
- What is a Business Performance Report?
- How to Read Financial Statements
- Income Statement Template
- Balance Sheet Template
- Cash Flow Statement Template
Here’s what your small business needs to know about financial reporting.
What Is Financial Reporting?
Financial reporting is the process of monitoring and recording essential financial data of a business for internal and external analysis. Such reports assess a business’s finances through its financial statements. This financial statement analysis determines whether the company is following all regulations of external institutions. Financial reporting also helps business owners with internal control and management.
What is included in financial reporting?
All transaction entries of a company must be recorded and analyzed accordingly, which makes up the core of a business’s financial statements. A financial statement reflects the performance of a company through its revenue generation and expenses and liabilities. No matter the types of financial reporting a business is doing, it will need to examine these financial statements,
- Income Statement: Also known as a profit and loss statement, demonstrates its overall performance through each period, showing its revenues and expenses.
- Balance Sheet: Also known as a statement of financial position, illustrates the financial position of the company at the end of an accounting period, including assets, liabilities, and equity.
- Cash Flow Statement: Primarily used to measure the company’s cash flow or net change in the cash balance and the increase and decrease in cash within a period.
- Statement of Retained Earnings: This financial statement, also known as an equity statement, outlines the company’s net income after they have paid out dividends to their shareholders over a specified time.
Who Are These Reports For?
The recipients of a business’s financial reports include the company’s management and external entities, such as investors, market analysts, creditors, and governmental agencies, like the Canada Revenue Agency (CRA). The CRA requires businesses to file income tax returns based on their financial standings, making financial reporting a necessity.
Such reports are also for public viewing. Businesses must make their dealings public to allow potential investors and possible shareholders to view their financial position. This is especially so of incorporated businesses or corporations. These publicly held corporations have extensive reporting protocols as all information must be provided to the public. If a business is looking for a line of credit, they must report their financial statements to creditors before receiving funds.
The International Financial Reporting Standards, IFRS for short, is an international organization that dictates the accounting standards of financial reporting for businesses around the world. They bring transparency, accountability and efficiency to the global financial market and set the reporting guidelines.
Overall, both public and private companies must produce their income statement, cash flow statement, and balance sheet for governmental bodies and public scrutiny, using the IFRS. Learn more about IFRS and GAAP.
Where Are These Financial Reports Going?
Once created, your business’s financial reports will need to be published publicly and filed accordingly. If for tax purposes, they must be filed with the CRA online or through the mail at certain times of the year.
Investors and creditors must have the information at their disposal as well, therefore making the publication of these reports necessary. Canadian companies will need to publish their records online. Many use the System for Electronic Document Analysis and Retrieval (SEDAR). SEDAR is a filing system that provinces a platform for public dissemination of various industries and businesses’ financial reports.
Why Are Financial Reports Important?
The financial statement analysis done through financial reporting is an essential aspect of these reporting requirements. Filing and publicizing a business’s financial statements allows others to check the financial health of the company. Not only does it provide equal footing to investors and the like, but it is also a requirement by law from the Government of Canada.
When Should These Reports Be Created?
When it comes to reporting for internal purposes, as the business owner, you can dictate when these financial reports are made and analyzed. However, when it comes to external forces, outside institutions will govern when your business should create and publish its financial statements. Generally, financial reports are created annually, quarterly, or monthly.
There will be specific quarterly and annual deadlines surrounding the financial reporting for tax purposes. The CRA dictates businesses must file their returns at particular times of years. Learn more about when Canadian taxes are due for small businesses.
How Can I Create Financial Statements and Reports For My Business?
Most businesses turn to accounting software to help them track and manage their finances. Software like QuickBooks Online syncs with your business accounts to automatically track expenses and cash flow to generate financial statements, such as an income statement, for your reports. Learn how to run reports in no time with QuickBooks.
QuickBooks Online provides businesses with an outlet to create all of their financial statements and reports in one place. Creating and managing your financial reporting shouldn’t be a chore when such statements can improve your business drastically and are required by law in some instances.
Try QuickBooks free today and find out the power of organized reporting.