Understanding your Bookkeeping Reports
When it comes to small business accounting, most owners know it is important to keep records up-to-date for tax purposes. But there are many other ways you can use your bookkeeping reports to grow your business:
Profit and Loss Statement
The P&L or Income Statement report tells you how much money you are making, but that’s just the beginning. When searching for local bookkeeping services, be sure they offer reports that provide a quick summary of how much you make in sales, how much you spend on business travel, and how much your computer maintenance and internet cost. Each business has different accounts for its unique income and spending categories.
Small business owners should look at this report at least once a month. It is also a good idea check for trends, comparing current results to the same period last year. This tells you what’s working and what isn’t, and can help you focus on the most profitable parts of your business.
A balance sheet gives a snapshot of your assets and liabilities. Assets include bank accounts, accounts receivables and investment accounts. A balance sheet may also include your building, equipment and other saleable property. Liabilities include credit cards, business loans and whatever else your business owes.
The accounting equation (assets plus liabilities equals equity) is based on the balance sheet. The difference between what you have and what you owe should be an affirmative number that grows over the months and years.
When reviewing the balance sheet, explore short-term assets against short-term liabilities. This will help ensure you don’t find yourself in the hole.
Accounts Receivable and Accounts Payable Aging
An A/R aging report shows how well you are doing on collecting. Look out for customers who are often late or usually pay on time and recently started paying late.
Upstanding customers pay on time. Less stable clients pay late. If a client is building a bad payment track record, you might want to rethink having this company or individual as a customer.
Your A/P aging report tells who you owe and how much. As long as your books are updated, you can easily avoid missing due dates.