Kevin needs to summarize his company’s financial performance over the last quarter.
Which QuickBooks report would be most useful from the following option and why?
a. Accounts receivable aging summary
b. Balance sheet
c. Profit and loss
d. General ledger
The correct answer and explanation is:
The correct answer is c. Profit and Loss.
Explanation:
The Profit and Loss report, also known as the Income Statement, is the most useful for summarizing a company’s financial performance over a specific period (e.g., the last quarter). This report provides a clear overview of the company’s revenues, costs, and expenses, showing the net profit or loss for the given timeframe. Here’s why it’s the most suitable choice:
- Revenue and Expense Tracking: The Profit and Loss report provides a detailed breakdown of how much money the company earned (revenues or sales) and how much it spent (expenses). By examining these categories, Kevin can determine whether the company is operating profitably during the quarter.
- Net Profit or Loss: It highlights the net result, either a profit or loss, which is critical for assessing the overall financial health of the business. This helps Kevin to communicate the company’s financial performance clearly to stakeholders.
- Period-Specific Information: The Profit and Loss report can be customized to show performance over any period, such as the last quarter, making it an ideal tool for summarizing performance during that time frame.
Why the Other Reports Are Less Useful for This Purpose:
- a. Accounts Receivable Aging Summary: This report shows the outstanding amounts owed by customers, categorized by how long the invoices have been outstanding. While useful for managing cash flow and collections, it doesn’t directly provide a snapshot of overall financial performance.
- b. Balance Sheet: The Balance Sheet gives a snapshot of the company’s assets, liabilities, and equity at a specific point in time. While important for understanding the company’s financial position, it doesn’t track performance over time like the Profit and Loss report does.
- d. General Ledger: The General Ledger provides a detailed record of all financial transactions, but it’s too granular and not focused on summarizing overall financial performance. It’s more useful for accounting purposes rather than high-level performance analysis.
Thus, the Profit and Loss report is the most appropriate for Kevin to assess and summarize the financial performance of the company over the last quarter.