4. Reports

Income Statement (Profit and Loss Statement)

This is probably the most significant report for the owner. It shows how the business is progressing for a given period. There are normally two or more levels shown in an income statement.
  • Gross Profit. The Gross Profit is the difference between the net sales and the cost of goods sold (cogs). Net sales are the total sales less any taxes (VAT or GST) and, of course, less any discounts. The Cost of Goods Sold are those costs that can be directly attributable to individual sales. Examples are the purchase price of the goods sold, freight charges, import duties and other similar costs.
  • Operating Profit. The Operating Profit is the Gross Profit less all of the other Operating Expenses. If the business is a Sole Trader (not a Company) then it is likely that the Operating Profit will be the same as the Net Profit.
  • Net Profit is the Operating Profit less non-operating Expenses and plus non-operating Income.

 
 
Balance Sheet
If the Income Statement reveals the progress made by the business for a certain period of time, then the Balance Sheet reveals the health of the company at a given point in time. The Balance Sheet shows how much the company owns (assets), how much it owes (liabilities) and which is in excess. Of course, if the company owes more than it owns then the company is bankrupt. The difference between the assets and liabilities is the net value of the business and is usually called the “net equity”.

The Bookkeeping Equation

Assets -  Liabilities    =    Owner's equity

This means that the Capital value of the business to the owner is equal to the Net Assets.

Reconciliation Reports

Reconciliation reports compare the entries in a particular account in the business books with the entries in external account. The most common example is the Bank Reconciliation Report. Ideally, the balance in your version of the bank account should be the same as the version held by the Bank. However, this is rarely the case and the Bank Reconciliation Report sets out to explain the difference.

Bank Reconciliation Report
The difference between your version and the Bank's version can seem to be generally 2-fold.

Uncleared Checks Checks drawn by your business have not yet been presented to the bank. When you pay a supplier by check it may take some days before the supplier deposits the check and the checks are cleared by your bank.

Uncleared Deposits When you deposit a check it might take some days before a check is cleared by your bank.

The general format of a Bank Reconciliation report is:

 

 

Note that with a Bank Reconciliation Statement the purpose is to determine why the balance in the business accounts is different from the balance on the Bank Statements. The only time the Business Accounts would be changed would be if an error was discovered or if a permanent change was required (e.g. a dishonoured check, interest, etc.).

Credit Card Reconciliation
It is important to check for incorrect entries and to make entries for interest, etc.
Other Account Reconciliation

Compare the business record with the customer's record or the supplier's record.

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