Reading Financial Reports For Dummies, 4th Edition
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Financial reports developed for internal use can vary significantly from what the public sees. Internal reports don't have to follow the strict rules of GAAP (generally accepted accounting principals): They can be designed in any way that helps management make decisions.

The data for internal reports are usually the same data that companies need to collect to prepare their external reports, but the internal documents usually include more detail. For example, an external report may show only a number for net sales, whereas internal reports show managers a number for gross sales, details about discounts and returns, and possibly other line items.

Internally, a company needs to know how much it's giving up in discounts and also needs to track returns. If the trend for giving discounts is going up, it may indicate a problem with pricing, a change in competition, or an economic downturn. Whatever the problem, management must be alerted in case the company needs to make operational changes to maintain profit margins.

If returns are trending upward, it may suggest a quality control problem. Again, management needs to investigate this possibility, but the company certainly doesn't want to include that information in public reports.

Companies also commonly develop internal reports to track customers and see whether they're paying their bills on time. This issue becomes a concern only when a company offers credit directly on a store-based credit card; companies don't need to monitor payments on credit cards from third-party vendors. This internal report enables companies to see which customers are behind on their bills and quickly cut off their access to further credit until they catch up.

That info is just a sample of the additional detail you may see on internal reports. If you're working for a company and need to track detail internally differently than what you report to the public, talk with your accounting department and see if staff can format the numbers you need into a useful report for decision-making purposes.

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Lita Epstein, MBA, enjoys helping people develop good financial, investing, and tax planning skills. She designs and teaches online courses and has written more than 40 books, including Bookkeeping For Dummies and Reading Financial Reports For Dummies.

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