What is financial reporting?

Financial reporting (definition)

Financial reporting aims to track, analyse and report your business income. This helps you and any investors make informed decisions about how to manage the business.

These reports examine resource usage and cash flow to assess the financial health of the business.

Types of financial reports

Three main goals of financial reporting

1. Provide information to investors

Investors want to know how cash is being reinvested in the business, and how efficiently capital is being used. Financial reporting helps investors decide whether your business is a good place for their cash.

2. Track cash flow

Where is your business’s money coming from and where is it going? Is the business making a profit or a loss? The answers to these show how well your business is performing, and whether it can cover its debts and continue to grow.

3. Analyse assets, liabilities and owner's equity

By monitoring these, and any changes to them, you can work out what to expect in the future, and the growth potential for the business.

Financial reports adhere to a group of taxation, accounting and legal requirements, called the International Financial Reporting Standards (IFRS). This is so a business’s finances can be understood all over the world – a necessity with the increase of global companies and international shareholders. The US is currently an exception to this as companies there are required to use the Generally Accepted Accounting Principles (GAAP).

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This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.