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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.
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
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
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