Which Financial Reports Should a Small Business Owner Read?

Sep 19

6 min read

Updated: Sep 23

Short answer: Three. The profit and loss statement tells you whether you made money over a period. The balance sheet tells you what you own and owe at a point in time. The cash flow statement tells you where the cash went. You need all three, because a profitable business can still run out of money.

Most owners are handed a monthly package and read the bottom line of page one. That number is the least useful thing in the file. Financial statements are the standard set of financial reports your bookkeeping produces - the same three reports your accountant, your bank and the CRA will expect to see.

Small business owner reviewing three financial reports at her desk: profit and loss, balance sheet and cash flow.

What does the profit and loss statement tell me?

It tells you whether you made money over a period, and where the money went to get there.

The P&L - also called the income statement - covers a month, a quarter or a year. It starts with revenue, subtracts cost of goods sold to give gross profit, subtracts operating expenses, and ends with net income.

Four things to look at, in order:

Gross margin percentage, not dollars. Gross profit divided by revenue. If that percentage is drifting down while sales grow, you are getting busier without getting richer - usually pricing that has not kept up with costs.
Month over month, not just the month. One month tells you almost nothing. Three columns side by side tell you the direction.
Expense lines that moved. Not the biggest lines, the ones that changed. A category that doubled is worth thirty seconds of thought.
Anything in a miscellaneous or uncategorized account. That is a question someone has not answered yet, and it is usually the most interesting number on the page.

What does the balance sheet tell me?

It tells you what the business owns and owes right now. It is a snapshot: assets on one side, liabilities and equity on the other, always in balance.

Owners tend to skip it, which is a mistake, because it is where the problems hide.

What to check:

Accounts receivable. How much are customers holding, and for how long? An A/R aging report with significant amounts over 60 days is a collections problem, not an accounting problem.
Accounts payable. What do you owe suppliers, and is any of it overdue?
HST/GST payable. This is not your money. It is tax you collected on the government's behalf and will hand over at the end of the reporting period. A large balance here means a large payment is coming. The CRA treats these amounts as deemed trust funds - held separate and apart from your operating cash. If you are not sure whether you should be collecting it at all, start with our post on when to register for GST/HST.
Payroll liabilities. Same logic. CPP, EI and income tax withheld from employees are also deemed trust amounts. See how payroll works for a small business in Canada.
Shareholder loan account. If you take money out of the corporation personally, this is where it lands. A growing balance owing to the company has real tax consequences and should be discussed before year-end, not after.

What does the cash flow statement tell me?

It tells you where the cash came from and where it went over the same period as the P&L, in three parts.

Operating. Cash in and out from running the business day to day - collections from customers, payments to suppliers and staff.
Investing. Cash spent on or received from equipment, vehicles and other long-term assets.
Financing. Loans taken out or repaid, and money you put into the business or took out as the owner.

The statement ends at the change in your bank balance for the period. If your P&L says you earned $40,000 and your bank account is down $5,000, this is the report that shows you why.

Why is my bank balance different from my profit?

Because profit is earned and cash is received, and they rarely happen at the same moment.

This is the single most common question business owners ask. Several things move one number without moving the other:

What happened	Effect on profit	Effect on cash
You invoiced a customer who has not paid	Increases profit	No effect yet
You collected an old invoice	No effect	Increases cash
You bought equipment	Small effect (depreciation only)	Large decrease
You repaid loan principal	No effect	Decrease
You collected HST on a sale	No effect	Increase, temporarily
You took an owner's draw	No effect	Decrease
You bought inventory that has not sold	No effect	Decrease

That table explains almost every case of "we had a great month but there is no money in the bank." Profit went up; cash went into receivables, inventory, equipment and loan principal.

What should I look at every month?

A short list that takes ten minutes:

Revenue and gross margin percentage, compared with the two prior months
Net income, compared with the same month last year if you have it
Cash on hand, and what is due to go out in the next 30 days
A/R over 60 days
HST/GST payable and payroll liabilities - money that is not yours
Any account you do not recognize

If nobody is producing that package for you each month, that is what our monthly bookkeeping and financial reporting service is for.

What does "reconciled" mean, and why does it matter?

Reconciled means every transaction in the accounting file has been matched against the bank or credit card statement, and the closing balance in the books equals the closing balance on the statement to the cent. Until that is done, the reports are a draft.

Unreconciled books produce specific, predictable errors:

Duplicate expenses, from a transaction entered manually and then imported again
Missing revenue, from a deposit nobody recorded
Bank fees and interest that were never entered

Each of those changes your profit. A P&L from an unreconciled file is a guess dressed up as a report. Reconciling every account, every month, is the core of how remote bookkeeping actually works.

How do these reports get used at year-end?

Your accountant starts from the trial balance - the underlying list of every account and its balance - and works toward the financial statements and the tax return. The cleaner and more reconciled the file, the less time that takes and the less it costs you.

They will also propose adjusting journal entries: depreciation, accrued expenses, corrections. Those entries have to be posted back into your bookkeeping file, or next year's opening balances will not match the accountant's closing balances and the difference compounds year after year.

Keep the supporting documents too. The CRA generally requires you to keep your records for six years from the end of the last tax year they relate to.

Frequently asked questions

How often should I get financial statements?

Monthly. Quarterly is defensible for a very small business with few transactions. Annually means you are finding out about problems eleven months too late to act on them.

What is the difference between cash basis and accrual basis?

Cash basis records revenue when money arrives and expenses when money leaves. Accrual records revenue when it is earned and expenses when they are incurred, regardless of payment. As of 2026, the CRA requires business income to be reported on the accrual method - only farmers, fishers and self-employed commission agents may use the cash method. QuickBooks Online can display either basis on screen, which is why two reports from the same file can show different numbers. Check which basis you are looking at.

My accountant gives me statements at year-end. Isn't that enough?

For tax compliance, usually yes. For running the business, no. Year-end statements tell you what happened up to twelve months ago.

What is a trial balance?

A list of every account in your books with its debit or credit balance at a point in time. It is the bridge between your bookkeeping and your accountant's year-end work.

Why does my HST payable look like profit?

It isn't. The HST or GST sitting in your bank account was collected on the CRA's behalf and is owed at the end of your reporting period. Reading it as available cash is one of the fastest ways for a profitable business to miss a remittance.

Sources

About Remote Bookkeeping

Remote Bookkeeping is a Canadian-owned firm providing monthly bookkeeping, financial reporting, payroll, HST/GST filing, year-end preparation and QuickBooks Online setup to small businesses across Canada. Founded by Lia and George, the firm has been keeping books for Canadian business owners for over 30 years. See our pricing or get in touch - call (289) 867-0808 or 1-800-880-9141.

This article is general information for Canadian small business owners. It is not tax, legal or accounting advice for your particular situation. Rates and thresholds change - always confirm against the source linked above or ask us.