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Financial reporting is the process of recording and presenting a company’s financial performance. Reports such as income statements, balance sheets, and cash flow statements show important information like profitability, stability, and available cash.
A Shopify Q4 2025 survey found that 77% of store owners track sales or total revenue, and fewer than half track profit margin, traffic, average order value (AOV), or conversion rate.* Financial reports show whether rising sales are producing stronger margins or simply increasing costs, which are valuable insights you can use to grow your business.
This article explains the most common financial reports, who uses them, and what each report shows.
What is financial reporting?
Financial reporting is the process of collecting, organizing, and presenting a company’s financial data.
The finished reports, also called financial statements, record the company’s activities and financial position over a set period. They often include the balance sheet, income statement, cash flow statement, and statement of shareholders’ equity.
Financial reporting draws mainly from financial accounting, one of several types of accounting. Businesses use internal financial reports to track budgets, departmental results, and short-term cash needs. They may also prepare financial statements for external users such as investors, lenders, and tax agencies, subject to accounting standards and filing rules.
Why is financial reporting important?
Financial reports give businesses a view of revenue, expenses, cash, and debt. Financial reporting helps businesses assess profitability, support financing applications, and prepare required filings.
Confirm your store is profitable
A store can generate strong sales and still lose money after product costs and operating expenses. An income statement calculates profit, and a cash flow statement records when money enters and leaves the business.
Together, they distinguish accounting profit from cash available to pay bills. A 2025 QuickBooks survey of 2,487 US small businesses found that 56% were owed money from unpaid invoices. The average figure was $17,500 per business, and 47% of the businesses had invoices more than 30 days overdue.
Show lenders you can repay
Lenders use financial statements to assess income, cash flow, debt, and repayment capacity.
The Federal Reserve’s 2026 “Report on Employer Firms” found that 60% of small employer firms applied for financing during the previous 12 months. Only 42% of applicants received the full amount sought.
Updated statements give lenders figures they can compare across reporting periods.
File taxes and required reports
Financial reports organize the figures used in tax returns and other filings. In the US, the Internal Revenue Service requires records that document business income, expenses, and deductions.
The Canada Revenue Agency and the UK’s HM Revenue & Customs also set rules for business recordkeeping. Obligations depend on the business’s location and legal structure.
Types of financial reports
The SEC identifies four main financial statements, each of which answers a different question about a company’s finances.
| Financial report | Timing | Question answered |
|---|---|---|
| Income statement | A set period | Did the business earn a profit or record a loss? |
| Balance sheet | A specific date | What does the business own and owe? |
| Cash flow statement | A set period | Where did cash come from, and where did it go? |
| Statement of shareholders’ equity | A set period | Why did the owners’ stake increase or decrease? |
Income statement
The income statement, or profit and loss (P&L) statement, records revenue, expenses, and net income or loss over a set period. A multi-step income statement separates gross profit, operating income, and net income.
Revenue minus cost of goods sold (COGS) equals gross profit. Operating expenses, interest, and taxes reduce that figure to net income.
Example: An apparel store records $50,000 in revenue, $25,000 in product costs, and $20,000 in other expenses. Their net income is $5,000.
What to look for: Changes in gross profit, operating income, and net income between periods
Balance sheet
The balance sheet displays a company’s assets and liabilities and equity on a specific date. It follows this formula:
Assets = Liabilities + Equity
Example: A home goods store has $60,000 in assets and $25,000 in liabilities. The remaining $35,000 is owner equity.
What to look for: Whether current assets cover current liabilities and whether debt has increased between reporting dates
Cash flow statement
The cash flow statement records cash received and spent during a set period. It divides cash movements into operating, investing, and financing activities. This report separates cash activity from revenue and expenses recorded under accrual accounting.
Example: A wholesaler records a $10,000 credit sale as revenue. The cash flow statement records the cash when the customer pays.
What to look for: Changes in operating cash flow and any large difference between net income and cash generated
Statement of shareholders’ equity
The statement of shareholders’ equity records changes in the owners’ and investors’ stakes during a set period. It begins with the opening equity balance, adds profits and owner investments, and subtracts losses and distributions. Repeated losses can produce negative retained earnings, meaning accumulated losses exceed accumulated profits.
Example: A company begins the quarter with $40,000 in equity, earns $8,000, and distributes $3,000 to their owners. Ending equity is $45,000.
What to look for: The source of any change in equity, especially losses or large owner distributions
How the financial reporting process works
Financial reporting converts sales and spending records into four statements. Businesses repeat this five-step cycle at each monthly, quarterly, or annual close.
1. Record transactions
Enter every transaction in the general ledger under the correct account and date:
- Sales: Record sales, discounts, returns, collected taxes, and payment-processing fees as separate entries.
- Expenses: Record inventory purchases, shipping, payroll, rent, loan payments, and tax payments.
- Source records: Retain invoices, receipts, bank records, and processor reports.
The IRS explains that purchases, sales, payroll, and other transactions create the documents used to record activity in a company’s books.
2. Reconcile accounts
During bank reconciliation, compare the general ledger with the bank statement. Apply the same process to credit card, payment processor, and loan statements. Match each entry, then investigate missing transactions, duplicate charges, incorrect amounts, and deposits still in transit.
Ecommerce businesses also reconcile gross sales with refunds, discounts, taxes, and processor fees before matching the net payout deposited in the bank. Complete each reconciliation before closing the reporting period.
Offbeat Bikes owner Mandalyn Renicker faced extra sales tax work because payments came through multiple systems.
“It becomes a lot of extra work when you have payments coming in from multiple different places,” she says in a Shopify case study.
3. Make adjusting entries
Post journal entries for financial activity that belongs in the reporting period but has not yet appeared in the ledger. Adjustments can include accrued expenses, revenue earned but not yet collected, inventory changes, depreciation, and prepaid expenses used during the period.
Under accrual accounting, a business records September electricity costs in September even if it pays the bill in October. Keep the calculation or source document for each entry.
4. Generate the financial statements
Run an adjusted trial balance after posting the final entries. Confirm that total debits equal total credits, and then:
- Prepare the income statement, balance sheet, cash flow statement, and statement of shareholders’ equity.
- Match the ending cash balance on the cash flow statement with cash reported on the balance sheet.
- Confirm that net income flows into equity after owner investments and distributions are added or deducted.
- Correct any discrepancy before finalizing the statements.
5. Review and distribute
Check that the reports agree with one another. Ending cash on the cash flow statement matches the cash figure on the balance sheet. Net income also flows into equity after accounting for owner contributions and distributions.
Correct any discrepancies, finalize and then distribute the reports to owners, managers, lenders, investors, or other stakeholders who need them.
Who uses financial reports?
A range of stakeholders rely on financial reports to make their decisions:
Investors
Investors use the income statement to review revenue, profit, and gross profit margin; the balance sheet to assess assets, debt, and equity; and the cash flow statement to see whether operations generate cash.
Historical results and forecasts also feed models that estimate future profits, cash flow, and company value.
Lenders and creditors
Lenders use the balance sheet and cash flow statement to assess repayment capacity. Assets can provide collateral, and debt levels reveal existing obligations.
The current ratio and quick ratio measure short-term liquidity. Free cash flow indicates how much cash is available after capital spending.
Business owners
Business owners compare revenue, expenses, margins, and cash flow with budgets and prior periods. These results shape pricing, hiring, inventory purchases, and strategic planning.
Recent trends also provide a basis for forecasting sales and cash needs. Comparing forecasts with actual results shows whether the business is on track.
Regulators
Regulators review financial reports for compliance with accounting and securities rules.
US public companies file annual Form 10-K and quarterly Form 10-Q reports with the SEC, and usually use generally accepted accounting principles (GAAP). Many other jurisdictions use IFRS Accounting Standards.
The differences between GAAP and IFRS affect how some transactions and assets are measured and reported. The annual financial statements of US public companies also undergo an independent financial audit.
Private companies generally have fewer public filing duties. Tax rules, financing agreements, investors, or local company law can still call for financial statements. Obligations vary by jurisdiction and entity type.
Other stakeholders
A few other roles use financial reporting in their own ways:
- Employees and unions review profit, cash, and debt during pay or benefit negotiations.
- Suppliers examine liquidity before extending trade credit.
- Potential buyers perform due diligence to verify earnings, debt, and cash flow.
Financial reporting software and tools
Financial reporting software collects transaction data and organizes it for analysis, reconciliation, and accounting.
Cloud products accounted for 68.08% of the accounting software market in 2025. Small and midsize enterprises are the fastest-growing customer segment, with a projected 10.85% compund annual growth rate (CAGR) through 2031.
Shopify stores have several options for reporting on commerce data:
- Shopify finance reports: Shopify’s built-in finance reports display sales, payments, taxes, and gross profit. Merchants can open detailed reports from the Finance Summary in Shopify admin.
- Better Reports: Better Reports creates custom metrics and reports from Shopify data. Reports can be scheduled for delivery by email or exported to Excel, CSV, PDF, and Google Sheets.
- Report Pundit: Report Pundit provides custom reports for sales, inventory, payouts, and taxes. Scheduled reports can be sent to destinations such as Google Sheets, Slack, and Power BI.
Shopify finance reports cover commerce activity. A complete accounting close also draws on bank accounts, payroll, loans, and expenses recorded outside Shopify.
Financial reporting automation and AI
Automation moves transaction data between commerce and accounting systems. The QuickBooks Online app for Shopify imports orders, refunds, and payouts. It also links sales, fees, and refunds to the corresponding payouts.
Shopify Sidekick lets store owners create or edit reports through plain-language prompts. For example, a store owner could request a report comparing product sales, costs, profits, returns, and discounts. Shopify’s 2025 survey of store owners found that 50% of AI users conduct regular P&L reviews, compared with 39% of non-users.*
Capgemini’s 2025 “AI in Action” research surveyed 1,607 executives. Among the 716 at companies with at least one AI pilot, average realized or expected savings in finance and accounting were 30%.
Despite those potential savings, adoption remained limited. According to another Capgemini report, only 2% of organizations reported having deployed AI agents at scale in 2025. Another 12% had reached partial scale, and 23% were running pilots.
Winter Park Cycles shows how a store can connect several systems. Their WorkMate and Bookkeep apps send purchase orders to QuickBooks as bills. The setup also posts daily journal entries for sales, cost of goods sold, and deposit reconciliation.
Financial reporting dashboards
A financial reporting dashboard presents selected figures in a single view. A store could combine Shopify sales and gross profit data with cash balances and operating expenses from accounting software. Period comparisons reveal changes in margins, spending, and liquidity.
*Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with 2+ years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.
Financial reporting FAQ
What is the purpose of financial reporting?
Financial reporting provides a consistent view of a company’s performance and financial position. Owners use it to track profit and cash. Investors and lenders assess returns and repayment capacity. Regulators review reports for compliance with accounting, tax, and securities rules.
What are the most common financial reports?
The four main financial reports are the income statement, balance sheet, cash flow statement, and statement of shareholders’ equity. Together, they show profitability, assets and liabilities, cash movement, and changes in ownership value.
Is financial reporting the same as accounting?
No. Accounting covers the full process of recording, classifying, and reconciling financial transactions. Financial reporting is one part of accounting. It uses those records to prepare statements for business owners and other readers.
Is financial reporting difficult?
Its complexity depends on the business. A small company with organized records and accounting software can efficiently prepare basic reports. Multiple sales channels, large inventories, international transactions, or complex tax obligations can make an accountant’s assistance useful.
How do I prepare a financial report?
Record transactions in the general ledger, reconcile each account, and post adjusting entries. Run an adjusted trial balance, then prepare the income statement, balance sheet, cash flow statement, and statement of equity. Review the statements for discrepancies before distributing them.