Background of the Study: In Uganda there is limited financial reporting among Small and Medium Enterprises (SMEs) and thus no basis for financial decision making, and planning leading to high failure rates of small and medium size enterprises. Equally most enterprises in Pakwach Town Council operate with inadequate accounting information knowledge leading to inability to prepare financial reports. Purpose: The Study examined the relationship between Accounting records and Financial Reporting of Small and Medium Enterprises in Pakwach Town Council. Design/Methodology/Approach: Both qualitative and quantitative approaches were used to obtain required data. Proportionate stratified random sampling was used to select 135 small and medium enterprises in which questionnaires and interviews were administered to employees and owners respectively. Findings: There was a positive significant relationship between the nature of accounting records and Financial Reporting(r = 0.266, P < 0.05). If the quality of accounting data is poor the financial reports produced will also be poor and not to the required standard. Good accounting records aid in the disclosure of financial information to management and the public about business performance over a specific period of time. Lack of proper accounting records limit the ability of businesses to prepare financial reports which are a prerequisite for accessing credit and making poor financial decisions which affect business success. Research Implications: Results from this study create awareness of the need for record keeping and financial reporting by SMEs in order to ensure their survival. Originality/Value: The study highlights current financial reporting procedures among the SMEs in Pakwach Town Council. Results can be used as a general measure of overall financial health of SMEs in other areas in Uganda. The study recommends designing of a policy that emphasizes the value of accounting record keeping among the SMEs if they are to have sound financial management leading to their sustainability.