It often seems confusing to understand the differences between financial reporting and accounting while taking close notes on your business financials. And undoubtedly, the terrible impact of the COVID pandemic has blurred the line between those. But if you want to be updated about your business, you must know everything about financial reporting and accounting. So, let's explore them first, and then we will discuss the harsh impact of COVID-19 in this field.
The process of accounting to gather financial data for a business is coined as financial reporting. Every company performs two types of financial reporting - internal financial reporting and external financial reporting. These two types of financial reporting have different purposes.
There are many types of financial statements that you need to understand. Here are a few examples. Let's have a look –
You have already seen that a balance sheet tracks the current financial activities of a company. But income statements monitor the financial occurrences throughout a year. For various companies, the income statement is similar to the profits-losses statements. It presents the actual revenue performance, income, and expenses of a business.
Companies use cash flow statements to evaluate their financial health of themselves, such as how their profits support their expenses. If you want to get a clear idea about the efficiency of your company’s current practices, spending natures, and revenue generation, then you have to go through the cash flow statements.
The balance sheet of a company shows you its records of total assets, liabilities, and equity. Most businesses track the balance sheet quarterly and use it to include data while creating yearly reports. But mainly, the use of a balance sheet is getting a real-time assessment of a company's current asset liquidity and debt coverage.
It's hard to comprehend a company's financial performance without financial reporting. Not only that, but also there are many other benefits of financial reporting. Here are they. Let’s have a look –
It's impossible to make crucial financial decisions without analyzing and comprehending the financial statements. Using financial reports, one can get ideas to identify trends and problems. Also, one can get real-time financial performance assessments through this report.
Business owners and the management get a clear insight into their current assets and liabilities through financial reports. Also, they can easily find out the way to manage their company’s outstanding debt.
Financial reports are needed to evaluate a company's net taxable income. And flawless financial reports help to eliminate the risk of error and save a lot of time. When you have a clear and accurate financial report, you get rid of all the complexities that come with the company's tax filing every year.
Undoubtedly, an error-free financial report can help to enhance a business’s financial performance. And it also showcases that the company is legitimate.
Outsider stakeholders should have an awareness of a company's financial condition before they decide to invest. And financial reporting helps a lot with that. It presents the integrity of a company's financial structure and helps to weave trust with investors.
To make a financial report, you need to do financial accounting. It basically aims to gather a company’s financial information while preparing for financial reporting. And also, it keeps track of the business’s income and expenses.
Here are the major roles of financial accounting –
Financial reporting and accounting share a strong bond, but still, there are various differences between financial reporting and accounting. Here are they. Let’s have a look –
Financial accounting generates and keeps a record of a company’s financial data. Financial reporting will analyze those data in the future.
Financial reporting compiles all financial data together. But financial accounting can’t do that.
If you want to run all your business accounts smoothly, you have to follow some significant rules while doing financial accounting. But if you take the rules lightly, the total calculation process will be disturbed. And you will get flawed financial reports.
Financial reporting mainly talks about the future finances of any business and also makes clauses on future spending. Finance accounting collects the information. And analyze all those data with reporting at the end of the year.
Also, there are a lot of differences between financial reporting and accounting's primary objectives –
Financial Accounting |
Financial Reporting |
It collects information on any business's financial history. |
It makes a prediction for future finances. |
It analyses and interprets any business’s financial condition. |
It presents a clear picture of any business’s financial condition. |
The main focus of financial accounting is cash flow and economic value. |
It collects any business’s financial information and presents it in a user-friendly format. |
We all know and have faced the cruelty of COVID-19 and its challenging consequences. The rapid change of the situation due to the pandemic has hit certain industries and almost broken their backbones. And all these things have created an uncertain future for the world economy and financial markets. Needless to say, every company's financial reporting and accounting process have been severely damaged due to this. COVID-19 has interrupted the cash flow and the support of lending partners too. According to various reports, the world economy will take a lot of time to get back in shape. So, what we can do is wait and hope for better results only!
You can see that the pandemic has changed everything. And now we are living in unprecedented times. Society and businesses will get back to their actual shape for sure, but we need to provide our collaborative effort. So, let's hope for the best!
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