Types of Financial Reports

Monthly Reports

The following reports must be updated and distributed to ownership periodically—as often as monthly:

• Income statement: this report is for internal use; it shows income and expenses for a certain time span. Unlike a budget, it shows actual figures. The income statement is discussed later in this lesson.
• Rent roll/Collections report: this report is updated monthly and included in the report to the owner. The rent roll for an office building or shopping center is much more complicated than the typical residential rent roll. Nevertheless, rentals normally are a property’s main source of income, and an up-to-date rent roll is crucial.
  
  Two basic reports can be derived from the rent roll: vacancy reports, and delinquency reports.
• Vacancy report: a report that monitors vacancies; it is updated monthly and included in the report to the owner.
• Delinquency report: a report that tracks late payment of rent; it is updated monthly and included in the report to the owner.
• Cash flow budget: this report is usually updated monthly and can be included in the report to the owner. Cash flow budgets often include brief descriptions of variances, and for that reason, they are a brief general recap of financial activity.

Variance Report

Variances can be shown in the monthly cash flow budget; however, a variance report is a narrative report that describes assumptions, amounts, and plans for managing variances. It communicates to the owner that the real estate manager is aware of the variances and will take action as needed.

Variance analysis is important in analyzing financial statements and reports. Variance analysis asks several questions that focus on financial performance and have an impact on decision making:

• Do the budget and the actual figures differ?
• How significant is that difference?
• What is the reason for the variance?
• Were the forecasting techniques reliable?
• Is action necessary to correct the situation?
• What actions can be taken?

General Ledger

A general ledger is a formal record of all the financial transactions of a business. Accounts are transferred as final entries from the various journals to the general ledger, where they are posted as debits and credits and thus show the accumulated effects of transactions. Financial statements are built from the general ledger.

• A journal is a book or page where accounting entries are made.
• A debit is one of the two values in a double-entry accounting system entry. For every debit there is an equal and offsetting credit. At least one component of every accounting transaction (journal entry) is a debit amount. Debits increase assets and decrease liabilities and equity.
• A credit is one of the two values in a double-entry accounting system entry. At least one component of every accounting transaction (journal entry) is a credit amount. For every credit there is an equal and offsetting debit. Credits increase liabilities and equity and decrease assets. The sum of all general ledger debit balances should always equal the sum of all general ledger credit balances.

The general ledger provides a tracking tool for all financial transactions. All funds received and all funds paid out are accounted for in the general ledger. For this tracking system to work properly, it is vitally important to ensure that each financial transaction is originally assigned the correct account number from the property's chart of accounts. Cash, Accounts Receivable, Accounts Payable, Sales, Purchases, Telephone Expenses, and Owners’ Equity are all examples of general ledger accounts.

Yearly Reports

A formal year-end report to owners and investors normally is prepared in addition to monthly reports. In large organizations, the annual report can be quite elaborate and often includes a narrative describing the year’s business activity, finances, and future plans in addition to financial statements.

The following reports are prepared at the end of the fiscal year for distribution to owners, investors, and other interested parties. Accountants and auditors are usually involved in preparing and assessing these reports.

• Cash flow statement (pro forma):a year-end report that recaps the actual inflow and outflow of cash and its related sources and uses. Only items that involve a cash transaction appear on a cash flow statement. For example, depreciation, which is not a cash outlay, does not appear on a cash flow statement. This document can be prepared using the monthly cash budgets.
• Year-end income statement: a report that encapsulates the financial transactions for the fiscal period.
• Balance sheet: a financial report that shows an organization’s financial health by dividing its activities and capital into assets and liabilities. They are normally prepared at the end of the fiscal year. Balance sheets are discussed later in this lesson.

Income Statement

An income statement (sometimes called a profit and loss statement)gives a summary of the organization’s economic activity over a period of time, typically a year. It lists income, expenses, and net income (or loss). The income statement is prepared after all journal entries have been posted to the general ledger.

Real estate taxes are included with operating expenses, not with income tax. Income tax includes federal, state, and local taxes.

For internal use, an income statement can be generated as often as monthly. Reports for external use and internal use are discussed in more detail later in this lesson.

• The income statement for external use includes depreciation and interest expenses.
• The income statement for internal use includes principal payments as expenses.

Depreciation

Physical assets used for business, such as buildings and equipment, age and consequently lose value over time. Depreciation is the expense of using up an asset.

Interest

Interest is included in the income statement for external use. The figure for interest expense represents the amount that the property paid in interest on its loans.