Reports: what each one answers

One report, one question

ByteBook's reports are deliberately narrow. Each one answers a single question, and knowing which question saves a lot of time.

Report	The question it answers
Profit and loss	Did the business make money in this period?
Balance sheet	What does it own and owe, as at this date?
Trial balance	Do the accounts add up, and does the ledger balance?
General ledger	What happened in this account, entry by entry?
Cash flow	Where did the money come from and go?
Outstanding	Who owes us, and who do we owe?

Profit and loss

Income less expenses for a period. Income is recorded excluding GST, because GST collected was never the business's money.

One choice matters more than it looks. Expenses can be analysed by nature — what was bought, such as wages, rent, power — or by function — what the cost was for, such as cost of sales and administration. The standard requires one or the other, whichever provides information that is reliable and more relevant NZ IAS 1.99. ByteBook's chart of accounts is arranged by nature, which suits a small business and is easy to check.

Balance sheet

Assets, liabilities and equity at a date, and the arithmetic that has to hold:

assets − liabilities = equity

ByteBook computes that difference and states it on the page. If it is not zero, the page says so rather than hiding it. A balance sheet that does not balance is not a presentation problem; something is wrong in the ledger, and the figures are not usable until it is found.

The statement of financial position has to include certain line items where they are relevant, such as property, plant and equipment, inventories, trade and other receivables, cash, and trade and other payables NZ IAS 1.54. ByteBook groups its accounts to present them, and the general ledger is where you go when you want to see what is inside a line.

Trial balance and general ledger

The trial balance is every account with its balance, and the check that total debits equal total credits. It is the fastest way to find that something is wrong.

The general ledger is the detail. Pick an account and see every entry that touched it, in order. When a report figure looks wrong, this is where the answer is: not in the report, which is a sum, but in the rows that were summed.

Cash flow

Profit and cash are different things, and the statement of cash flows is where the difference shows. It reports cash flows for the period classified as operating, investing and financing activities NZ IAS 7.10, and it is normally prepared using either the direct method, showing gross cash receipts and payments, or the indirect method, which starts from profit and adjusts for the movements that were not cash NZ IAS 7.18.

Transactions that do not involve cash at all are excluded from the statement and disclosed separately NZ IAS 7.43. Buying a vehicle with a loan is a real transaction and no cash changes hands, which is why the statement has to say so rather than show nothing.

Checking a report rather than trusting it

Every report in ByteBook is a sum of the entries in the ledger. The final assurance procedure, A14, goes further: it recalculates the reports from the raw rows and compares the answer with what the page says.

This check exists because there are two different ways for a number to be wrong. The books can be wrong — a transaction coded to the wrong account — and the report can be wrong, through a defect in the program that builds it. The first is a bookkeeping problem; the second is a reporting problem, and no amount of careful coding will fix it.

A figure you cannot reproduce from the rows underneath it is not yet evidence.