What are Accounting Reports?

Accounting reports are compilations of financial information that are derived from the accounting records of a business. These can be brief, custom-made reports that are intended for specific purposes, such as a detailed analysis of sales by region, or the profitability of a specific product line. More commonly, accounting reports are considered to be equivalent to the financial statements. These statements include the following reports:

Income statement. The income statement states the sales earned during a period, less expenses, to arrive at a profit or loss. This is the most commonly used accounting report, since it is used to judge the performance of a business. There are multiple profitability measures that can be derived from this report that examine the gross margin, operating margin, and net margin.
Balance sheet. The balance sheet shows the ending asset, liability, and equity balances as of the balance sheet date. It is used to judge the liquidity and financial reserves of a business. There are multiple liquidity ratios that can be derived from this report.
Statement of cash flows. The statement of cash flows shows the sources and uses of cash related to operations, financing, and investments. It can be the most accurate source of information regarding the cash-generating ability of an entity. It is also a useful way to examine the size of management’s investments in fixed assets and other types of investment, as well as the sources of its financing.
Financial statement disclosures. A number of disclosures may accompany the financial statements, in the form of footnotes. This is more likely to be the case when the financial statements have been audited. Disclosures are rarely included when financial statements are only intended for internal distribution.

Why are Accounting Reports Important?

Accounting reports are needed to gain an understanding of the financial condition, financial position, and cash flows of a business. If the income statement incorporates the annual budget, then it can also be used to compare performance against budgeted expectations. These reports are especially useful when tracked on a trend line, to see how the numbers change over a series of reporting periods.