How to Write a Business Financial Report

BySean Butner

Businesses report their financial health for the sake of investors and creditors. Because businesses report to external stakeholders, they must prepare their reports according to the generally accepted accounting principles of the United States. Preparing business financial reports according to GAAP allows investors and creditors to compare the health of different companies by comparing financial statements.

Income Statement

The first financial statement a business prepares for its report is the income statement. Income statements start with revenue from operations and deduct expenses according to their classification. For example, a retailer would include an expense for cost of goods sold under net sales and subtotal the difference as gross sales. After deducting all operating expenses, the income statement accounts for non-operating expenses and revenues such as interest payments to arrive at net income before tax. Tax expense is listed separately to reduce income to after-tax net income, sometimes referred to as the bottom line.

Statement of Retained Earnings

Retained earnings are the profits a company hangs onto from one period to the next, which it can use to pay dividends or cover debts or finance projects. The statement of retained earnings connects the income statement to the balance sheet by accounting for the impact of net income and dividends. Start with the balance of retained earnings at the beginning of the period, add net income from the income statement and subtract cash dividends paid to arrive at the ending balance of retained earnings.

Balance Sheet

The balance sheet lists a company’s assets, liabilities and shareholder equity. List the assets on the left and liabilities and shareholder equity on the right. Both sides of the balance sheet should balance. Balance sheets order accounts based on whether the account is current, meaning it will impact the business within a year, or long term. For example, cash and accounts receivable are current assets, because they are available for use within a year, whereas equipment and real estate are long-term assets, because they are intended to benefit the company for more than a year.

Statement of Cash Flows

Even profitable businesses sometimes shuts their doors because they don't have available cash to pay their bills or purchase additional inventory. The income statement includes non-cash revenues and expenses, such as uncollected accounts and depreciation, that impact the financial standing of the business. Prepare the statement of cash flows by reporting the actual cash transactions classified by type of activity. Cash flows result from operations, investing and financing, in that order. At the bottom, include the total change in cash position, along with the beginning and ending balance of the cash account.

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