Business accounting is most beneficial when it produces accurate and timely information. However, you need to take in that information before you can use it, meaning you should review your financial statements at the end of every month. This can be particularly beneficial if you do so with an accountant who can explain anything unclear. Some financial statements are more critical than others. That means they should be prioritized before the rest.
The balance sheet describes your business's financial situation at a specific time. You review it to get an up-to-date understanding of where things stand. Something that can inform your strategic decision-making. For example, your balance sheet can tell you how well you can absorb economic shocks. Similarly, your balance sheet can give you insight into whether your finances are stable enough to support something ambitious. Besides this, you can also compare balance sheets to see how different accounts change over time through your activities.
Some businesses can survive years after years of losses while gradually building up their revenue-earning operations. For instance, The Motley Fool says Uber didn't produce a profit until almost one-and-a-half decades after its founding. Most businesses can't expect that kind of treatment from eager venture capitalists. As a result, you need to scrutinize your income statement because that's where you'll find the latest information on how your revenue-earning operations are doing. It tells you the strengths you can build on and the weaknesses you must shore up. Moreover, the income statement is one of your best sources on how your initiatives are changing your performance because you can compare current and past numbers.
Cash Flow Statement
The Corporate Finance Institute says most accounting is done according to the Matching Principle. This means you record expenditures as expenses when they're used to earn revenue rather than when they're made. Thanks to this, chances are good that your income statement differs from your cash flow statement, which summarizes the cash that has come in and the cash that has gone out. These things get less attention than revenues and expenses but are nonetheless critical. After all, you're in deep trouble if you lack the cash to pay everything that needs to be paid in the short term, even if your income statement says you're making money hand over fist. As such, maintain a watchful eye on your cash situation by checking your cash flow statement monthly. A shortage might be fillable, but you'll find it easier to do so when you see it coming.
Consider Reviewing Other Financial Statements Every Month
The balance sheet, income statement, and cash flow statement are the financial statements every business owner should review monthly. However, every business is unique, meaning the other financial statements you should pay attention to can see enormous variations. Investopedia describes the Accounts Receivable Aging, which summarizes how long they've remained unpaid. It's critical if you often let your customers have outstanding balances. In contrast, it's pointless if you only allow cash transactions. An accountant can advise you on what financial statements you should compile and review monthly. On top of that, they can guide you through them, which helps because the obscure ones tend to be harder to make sense of.
For more information, contact an accountant near you.