Accounting Reports

Here are the lessons in this section, along with a brief description of each one (Remember that you most probably will get the maximum benefit by doing the lessons in the order presented):

Lesson One: Accounting Reports (this page)
Lesson Two: Income Statement Example
Lesson Three: Statement of Owners Equity
Lesson Four: Balance Sheet Example
Lesson Five: Cash Flow Statement Example
Lesson Six: Other Accounting Reports

The most important accounting reports are called the financial statements.

Remember that the word statement, as used in the term financial statements, simply means a report. So the financial statements are simply financial reports.

The financial statements are prepared from the information in the trial balance. Return to this simple lesson on the trial balance if you would like to brush up on this preliminary accounting report.

Accounting reports come in various formats and all provide different information. However, they all have one thing in common: they give useful information about a business (or about an aspect of the business) to the reader.

The specific stated purpose of the financial statements is to show the reader the financial position, financial performance and cash flows of a business. This will become clearer as you go through the various reports that comprise the financial statements.

But here's a question - who are the readers of the financial statements? Who are these reports prepared for?

Well, the financial statements are like the business scorecard - they show if the business is doing well or not.

The people who want to see the financial statements are the people that are interested in this business scorecard - the guys who want to know how well the business is doing.

These people, in rough order of importance, typically include:

1) Business owners - They have the most direct interest in how well the business is doing. The better the business performs, the more money they make.

2) Business executives - Managers (people employed by the owners to run the business) will get fired if the business performs poorly, or get bonuses if it performs well!

3) Investors - Investors are only going to invest in businesses with good scorecards.

3) The bank - They are interested in the financial statements (the business scorecard) of businesses they have a relationship with. For example, they may want to look at the financial statements to see how risky it would be to loan money to the business.

4) The government and tax authorities - They want to know that the business is fulfilling their legal duties, and in particular, that they are paying enough tax! The financial statements give a good idea of how much tax the business should be paying over.

5) Suppliers - Suppliers want to get paid by the business they are supplying goods to! So oftentimes they will check the financial statements of the business well before they even begin to make any agreements to trade with them.

6) Employees - Though this is not often the case, an employee may want to know how well the business is doing so he or she can plan for the future. For example, if the business looks like it might fall apart soon, the employee would probably want to start looking for another job!

Financial statements are usually prepared once a year, but can be prepared more often.

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