The 5 essential reports your accounting clients must have before tax season

Tax season is about to hit us on the head. Some of your clients may already be in a frenzy, trying to get all their ducks in a row before starting to fill out the dreaded forms. Besides a pat on the back and a promise that everything’s going to be alright, there are a few tips you can give them to help prepare.

The most important thing is to be organized. If your clients have their various accounting reports lined up and ready to go, tax season will be a breeze for them.

While many financial reports have a relevance when it comes to managing a small business, there are five essential documents your clients simply must have if they want to stay on top of their day-to-day accounting situation and tax forms.

But not all reports are created equal. While many financial reports have a relevance when it comes to managing a small business, there are five essential documents your clients simply must have if they want to stay on top of their day-to-day accounting situation and tax forms.

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Balance sheet

Just like how a photograph freezes a moment in time, the balance sheet gives an accurate picture of the state of your client’s business at any given point. As you very well know, the balance sheet depicts the business’ assets and liabilities.

Assets include bank accounts, property, office equipment, and accounts receivables, while typical liabilities are loans, accounts payable, or credit card debt.

A quick look at the balance sheet can tell you how well your client’s business is doing. The difference between assets and liabilities is like a bill of health for the business. If all is well, the difference is a positive number, meaning that after paying their debt, your client will still have assets at their disposal.

Income Statement

Also called profit and loss (P&L) statement, this report shows how much money your client makes (or loses) through their various business activities.

A thorough income statement shows where your client spends their money and how much they get in return for it. For example, if your client spends $1000 a month entertaining a business partner but only earns $500 from the actual partnership, it may be time to sever the ties with that particular partner.

Similarly, if your client makes the majority of their money from one part of their operations while another one is clearly less profitable, you may want to advise them to focus their attention to their most lucrative business activities (unless there’s a reason why the other activity’s not doing well, e.g. it’s a new product yet to be introduced to the market).

Revenue by customer

Just like how the income statement alerts you about your client’s most profitable operations, the revenue by customer report tells you which of your client’s customers spend the most at their business.

This handy report highlights your client’s most promising customers, and which ones are not worth pursuing.

This handy report highlights your client’s most promising customers, and which ones are not worth pursuing.

Accounts receivable aging

This report shows you how long an invoice is sitting in your client’s accounts receivable before it’s actually paid. If all is well, all your client’s invoices are paid on time. Should the odd late payment pop up here and there, that’s not a reason to worry.

However, if many customers are frequently late with their payments, you may suspect a structural problem. Is your client operating with the easiest payment options? Do they work with reliable business partners? Do they give reasonable payment deadlines?

Dig deeper and find out why your client’s accounts receivable isn’t aging well.

Accounts payable aging

What goes around comes around. The accounts payable aging report shows how well your client’s doing with their own invoices.

Ideally, your client should pay all their invoices by the set deadline (though not too much in advance as that would disrupt their cash flow). Avoiding late payments is very important for your client’s business reputation.

If you find many overdue invoices, set a meeting and talk through the situation.

Conclusion

These five reports give you and your client a comprehensive look at their business’ finances. Read through the data and learn everything you need to know before you can advise your client on filing their taxes.

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