• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Financial accounting

Extracts from this document...

Introduction

A detailed explanation of the purpose of keeping accurate records The purpose of keeping accurate records will provide information that will help managers to make decisions about the future trends of their business. Keeping good record is vital in regards to meeting the financial commitments of a business and providing information on which decisions for the future of the business can be based. While the business maintains records to monitor and record its normal business activities it is also necessary because of obligations under the taxation laws. Stakeholders should be kept informed in order to improve investor's confidence and can make more contributions by investing more money into the business if they are regularly informed about the success of the business. Paying high dividends to shareholders and informing them on future dividends can make shareholders invest more money. A business that does not have accurate financial records may run into serious problems such as: 1. Making a mistake that leads businesses to lose the customers' confident. 2. Overcharging customers will lead to businesses losing its customers. 3. Overstating sales figures also overstates profit and pays too much tax. 4. Overstating sales figures and profits gives false impression of the business' performance to its owners and shareholders. 5. Understating sales figures also understates profit and the business pays little tax. 6. Paying little tax can get the business into trouble with the Inland Revenue. 7. Understating sales figures and profit can lose the confidence of business's managers, shareholders and lenders. The finances of a business must be monitored effectively, some of which involves examining the financial records of the business such as profit and loss account and balance sheets to determine how the business has performed over time and to assess the current situation. With accurate records, the owner or manager will know how the business had performed or even people that owes the business money. ...read more.

Middle

Capital is the owner's investment and is a liability of a business i.e. it is what the business owes the owner. It is important to realise that the assets and liabilities of a business are treated separately from the personal assets and liabilities of the owner of the business. Partnership is simple to establish and involves two or more people running a business together. In legal terms the partners are the business. A partnership often known as a firm can either trade in the name of the partners or under a suitable trading name. The essential legal point about a traditional partnership is that each partner is liable for the whole debt of the partnership, this means that if one partner runs up in a big debts each of the other partners will be liable for all of it. It therefore pays to take care whom you admit as a co partner in your business. A partner like a sole trade also have unlimited liability for the business. The only exception to this rule is the limited liability partner. Partnership prepares the same type of financial statements as a sole trader business, which includes trading, profit and loss account and balance sheet. But immediately after partnership profit and loss account there is also appropriation account which shows what happens to the net profit. The fixed assets, current assets and current liabilities of a partnership account is set out exactly the same way as sole trader, while the difference appears under financed by which is recognised that as there is more than one owner a different format will be required. Below is an example of a partnership profit and loss account. � � Sales 87,425 LESS COST OF SALES: Opening stock 15,425 Add purchases 14,550 29,975 Less closing stock 14,500 15,475 GROSS PROFIT 71,950 LESS EXPENSES: Wages 2,700 Electricity 450 Rates 1,000 Stationery 50 Advertising 825 Travelling expenses 500 Sundry expenses 250 5,775 NET PROFIT 66,175 ADD Interest on drawings D Williams 500 P Storey ...read more.

Conclusion

These regulations includes: * Professional accounting standards issued by the Accounting Standards Board. These include Statements of Standard Accounting Practice and Financial Reporting Standards. * The companies Acts 1985 & 1989 drawn up by parliament * Requirements of Stock Exchange for listed plcs * International accounting standards drawn up by the European Union. Statements of Standard Accounting Practice: the Accounting Standards Board issues Statements of Standard Accounting Practice. Statements of Standards Accounting Practice were introduced with the aim of limiting the ability of accountants to use diverse accounting procedures. There is an obligation on the part of members of the main professional accounting bodies to comply with the accounting standards in cases where they prepare accounts or are required to audit them. 25 Statements of Standard Accounting Practice were introduced between 1970 and 1990. Financial Reporting Standards: in 1990 Financial Reporting Standards was introduced to update Statements of Standard Accounting Practice and was gradually replacing. For example FRS18 superseded SSAP2, which formerly set standards for the disclosure of accounting policies. The Companies Acts 1985 & 1989: these acts of parliaments apply to limited companies only. They are the price that companies pay for the protection of limited liability and are designed primarily to protect the shareholders by ensuring that the directors are fulfilling their duty of stewardship over the shareholders' capital, i.e. they are using it wisely and working to provide them with a reasonable return. Protect the creditors from limited liability which could result in them not being paid. Requirements of the Stock Exchange for listed plcs: listed companies must provide an half yearly set of accounts as well as producing annual accounts. Listed companies have their shares traded on the main London Stock Market. The accounts must include additional information such ad a geographical breakdown of turnover. International accounting standards: directives from the European Union have attempted to establish minimum accounting standards for member countries. The companies Act of 1989 amended the 1985 Companies Act to bring the treatment of group accounts and the regulation of auditors into line with European law. ?? ?? ?? ?? 1 Adetoke Temitope Adefioye ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Structures, Objectives & External Influences section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Structures, Objectives & External Influences essays

  1. Btec National Business Level 3 Year 1 - Exploring Business Activity

    Other environmental regulations relate to how asbestos (a fibrous mineral used in fire-resistant and insulting materials) is disposed of, and restorations on how hazardous substances are stored. * Fraud: There is an increased amount of fraud which takes place as a result of cybercriminals hacking into Microsoft company databases, the

  2. The Business Environment Coursework. Describe the type of business, purpose and ownership of ...

    Marketing and Sales - advertising, promotions and market research Purchasing and buying - can deal with stock ordering, although in some companies this would be down to a manager involved in the operations, and deciding what products would be stocked.

  1. Linear Programming

    then the objective function would be : 40X+20Y=80 When X=0, Y=4 Point (0,4) When Y=0, X=2 Point (2, 0) Connect the two points we get the iso profit line (Shown in green) The area shadowed in orange is the range of mixtures that satisfy all the limitations in this problem.

  2. For my portfolio, I was asked to do an assignment on two businesses. I ...

    Consumer/customer patterns Vectone Gnanam Telecom had a made tremendous change in East Ham because in East Ham most of them are minority race and people from different countries who settle here. The sole traders in East Ham mostly used to sell Vectone cards and they have a demand for it.

  1. External influences on business. At ASDA we have to follow the following employment legislations ...

    But in the economics recessions of the 1980s and early 90s, unemployment rose rapidly, peaking at over 3 million in 1983-86. Since then, unemployment has fallen steadily, although 2005-6 jobless levels began to rise. The business cycle affects ASDA by telling us about the long-term growth trend.

  2. Critically discuss the concept of separate legal entity and its legal consequences and significance ...

    This limitation provides great security to shareholders who are able to profit from the activities of the company knowing that under the Insolvency Act their obligation is only limited to the face value of their shares (which is normally already paid up front and therefore there is no further liability).

  1. Investigating Business. Tesco PLC. I will be describing the aims and objectives of ...

    products & services they sell, also the fact that they had innovated product ranges (F&F, Technika...) and branched into other areas of retail has contributed to the success of Tesco?s in achieving their aim ?to be a modern and innovative company?, this is one of the reasons of why marketing

  2. Comparison of stakeholders interest and influence. Apple vs. Mercedes Benz

    Their decisions are vital because it can change the whole aspect of the company. For example; only the directors and CEO?s can create and review future plan developments, company goals, objectives and other important motives of the company or organisation.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work