But showing how the company's financial health is not the only function of the DRE. The report is also used by the government to verify that taxes were calculated correctly and by financial institutions when deciding whether to invest in the company.
In the next topics, you will see how to explore the potential of DRE to enhance your work and help your clients to make important decisions based on data.
Man looking at graphs of a report on computer
Importance of DRE in accounting
The Statement of Income for the Year (DRE) is an accounting Buy Email List report that brings together the main financial indicators of a company in a given period of time and shows whether it is making a profit or loss .
Together with the Balance Sheet , this is the main accounting statement that you can present to your client , as it contains a summary of the business results. However, no matter how complete and detailed the Income Statement is, it takes a certain mastery of accounting concepts to understand it.
This means that most of your customers won't understand—or appreciate your work—if they receive this report without a good explanation.
Therefore, this can be your great competitive advantage : translating the terms and importance of this document , showing that you are a strategic partner of the client and are ready to offer a wealth of valuable information.
After all, if well developed, the DRE is a kind of treasure map, which evaluates the company's performance and the efficiency of managers in obtaining positive results. It also shows how the financial health is and provides data so that the business owner can make decisions that bring more gains.
And if profit is the main objective of companies, nothing better than presenting a breakdown of the results for the year, explaining the main points of attention with high expenses and showing the months with the best performance.
In addition, it is possible to use the DRE to carry out a tax analysis and study possibilities to reduce the tax burden and to obtain data that can be used in other accounting reports.
But it's not just companies and accountants that use the DRE to get important information. It is through it that the government checks whether taxes have been calculated correctly and to check whether the profit declared therein is the same indicated by the partners in the IRPF.
Banks and financial analysts can also ask for the statement to assess the profitability of the business and decide whether to give credit to the company. Investors, on the other hand, usually analyze it to verify the risk of investing money in the company.
How to do the DRE?
The DRE in accounting already has a model established by Law 6,404/1976, which must be followed by all types of companies.
Certainly, some companies will have variations in the types of expenses, costs and even revenues, but their basic structure must be obeyed.
According to article 187 of the law, the Statement of Income for the Year will list:
Gross revenue from sales and services, sales deductions, rebates and taxes;
Net revenue from sales and services, cost of goods and services sold, and gross profit;
Selling expenses, financial expenses, deducted from revenues, general and administrative expenses, and other operating expenses;
Operating profit or loss, other income and other expenses;
Income for the year before income tax and provision for tax;
The participation of debentures, employees, administrators and beneficiary parties, even in the form of financial instruments, and of institutions or employee assistance or pension funds, which are not characterized as an expense;
The net profit or loss for the year and its amount per share of the share capital.
An important point that deserves attention is that the Income Statement must be prepared on an accrual basis — not a cash basis — and here is the big difference between the Income Statement and cash flow , which always causes confusion for entrepreneurs.
That is: if a purchase of R$ 1,000 of office material is made in 4 installments, the income statement will show the expense that occurred in the period, in the amount of R$ 1,000.
In the cash flow, the amount will appear in four installments of BRL 250, since only the moment in which they were debited is considered.
Why analyze the DRE
Entrepreneurs often think only of the cash balance, but they are unaware of the great usefulness of this report as an ally in business management .
With the DRE, it is possible to analyze whether the company made a profit or loss, which expenses and costs are higher, which were the most profitable periods, among other crucial information.
Therefore, presenting this document to your client together with the cash flow can generate a differentiated perception of value for your accounting firm.
After all, if you, with your expertise, examine your client's Income Statement for a few minutes, you will certainly find an expense that can be reduced.
Types of DRE analysis in accounting
In addition to analyzing how the Income Statement is extracted from the accounting system report, it is also possible to carry out other types of analysis to identify the main variations in the result.
Check out some options below:
DRE vertical analysis
Also known as Structure Analysis , it is done top-down or bottom-up using demo columns. It is used to identify the participation of a certain indicator in the results.
By performing a vertical analysis, you can calculate the percentage of each expense, income or cost in relation to gross revenue . In this way, it will be possible to notice quickly and effectively which expenses contributed to reducing profit for the period, for example.
Another advantage is the possibility of examining issues related to wealth management , such as the percentage of revenues that the company has to receive, the impact of investments and expenses on total equity and the percentage amount of debts.
DRE horizontal analysis
Horizontal analysis aims to understand the increase or decrease in accounts over a given period of time. It serves to compare current values with those of previous periods , which allows drawing conclusions about the company's evolution.
In this way, a comparison of the same elements is made, but in different exercises. With it, it is easier to identify outliers that need to be checked more carefully.
Horizontal analysis also provides information on how the company has grown and is also used to compare its evolution with its competitors and with the segment in which it operates.
Planned DRE x Realized DRE
Through this analysis, it is possible to find out if the established goals were reached. If the answer is negative, the company can create new strategies to reach the objectives or even review them.
Result indicators based on the DRE
DRE data also provides a range of outcome indicators to further enrich the financial analysis.
These are some examples:
EBITDA: this indicator means Earnings Before Interest, Taxes, Depreciation and Amortization, and serves to assess the financial reality of publicly traded companies;
Operating margin: is the indicator that measures the company's operating efficiency, given by the quotient between operating income and net revenue;
Net Profit Margin: This is the actual profit margin, with all expenses and taxes subtracted.
Person's hand holding a pen that points to graphs of a report
The importance of process control and automation
For the DRE in accounting to really have the expected effect, it is very important to make your client aware that all company transactions must be accounted for, no matter how small.
It is not uncommon to see businessmen buying office supplies without requesting the invoice in the company's CNPJ and, thus, unintentionally masking the true cost bottlenecks.
Furthermore, the automation of processes is essential, both to save the accountant's time with manual entries and to ensure that all data is entered into their corresponding accounts.
Offices often need to enter invoice by invoice and define expense by expense, consuming hours that could be invested in supporting client management. By automating these repetitive tasks, your company gains more time for strategic functions and increases your productivity.
Another point to consider is that the greater the manual workload, the greater the chance of human error. Therefore, if you want to present an Income Statement that is faithful to the company's accounting and financial results, prioritize the use of integrated and automated systems, such as Conta Azul.
Managerial Income Statement at Conta Azul Mais
In recent years, the accountant has ceased to be a bureaucratic worker to become a strategic partner in the management of companies . However, to fulfill this function in the best way, he needs tools that accelerate and optimize his work.
With that in mind, we developed Conta Azul Mais: a 100% online accounting solution with everything you need to manage your clients and office.