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

The Importance of Keeping Accurate Accounts.

Extracts from this document...

Introduction

The Importance of Keeping Accurate Accounts It is important for a business to create and maintain accurate financial records and to know about the different users of financial information. Every business has to meet internal and external reporting requirements to show its financial health and to meet legal and other requirements. The reasons why businesses therefore keep accurate records are: * Assessing its financial position - businesses assess their financial position every year so they know the business is making efficient use of resources to provide the necessary financial return to achieve a profit or suffered a loss. Businesses can find out if it as the ability to generate cash to ensure continued trading and to make dividend payments. This can be done by using figures from the profit/loss account and balance sheet to work out appropriate ratio such as acid test ratio which shows the liquidity of the business. * Compare its performance with previous years - this can show businesses its future prospects and predict future trends to show profit and loss. Good records provide the financial data that help you operate more efficiently, thus increasing the profitability of your enterprise. This is because accurate and complete records enable you, or your accountant, to identify all your business assets, liabilities, income and expenses which, when compared to appropriate industry averages, help you pinpoint the strong and weak phases of your business operations over the years. ...read more.

Middle

* Keep stakeholders informed - can improve investor's confidence and can make more contributions by investing in 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. Internal and external stakeholders interested in the business The following stakeholders are internally involved in the business: Owners/shareholders - interested in whether the business is making a profit - to receive dividends, state of financial affairs, financial structure, future prospects. Managers - involved and interested with the performance of the business, also concerned about the financial structure and information relating to their to make decisions. Employees - concerned about with their job security and how the business is going to develop to ascertain themselves for promotion needs, also financial structure to support wage claims. The following stakeholders are externally involved outside the business: Brokers - require the same sort of interest as owners, but brokers advise clients about the nature of their investments. Need to know company performance in order to advise clients accurately. Lenders - interested in whether the business as the ability to pay interest and make repayments on the loans. Therefore interested in the cash flow statement, assets and ability to pay debts. ...read more.

Conclusion

Provision is made for all known liabilities whether the amount of these is known with certainty or is a best estimate in the light of the information available. Similarly, 'prudence', which is defined in CA85 in the terms set out above, is no longer held in the same esteem by accounting standards. The up to date view of 'prudence' is that it is a concept applied to situations of uncertainty. Where there is doubt it is prudent to require firmer evidence about the existence of a gain or asset than about the existence of a liability or loss, and it is prudent to require a greater reliability of measurement for assets and gains than for losses. * The business entity concept The transactions recorded in a firm's books are the transactions that affect the firm. The only attempt to show how the transactions affect the owners of a business is limited to showing how their capital in the firm is affected. * The dual aspect concept This states that there are two aspects of accounting, one represented by the assets of the business and other by the claims against them. The concept states that these two aspects are always equal to each other. In other words: Assets = Liabilities + Capital ?? ?? ?? ?? ...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 ICT in Business 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 ICT in Business essays

  1. I have selected a nursery because there is high demand in the UK as ...

    Internet-I used this source as it's a invaluable research tool and was able to get useful information about the market and its competitors. Books-I used this source, as I was able to get ideas on topics such as: designing a plan, legal implications, and recruitment.

  2. kanthal - accounting

    For one, it requires a lot of effort and resources to track each and every customer order. The old system's simplicity is probably the primary reason why the organization did not move to a much more sophisticated accounting system. Furthermore, it will take time to convince the sales force to change their current behaviour.

  1. Business Report on Manchester Airport PLC.

    Operations There are many different operations at Manchester Airport these include: * Preparing the aircraft * Teams of cleaners * Specialist attend to fuelling * Plane is prepared (food, drinks, newspapers)

  2. Computerised Accounts - What are the advantages and limitations of using accounting software and ...

    to be suited to the companies required needs and it must be easily operated by the intended workforce. Manual Accounting System: The manual accounting system consists of the following: > Sales ledger > Purchase ledger > General or Nominal ledger > Cash Book Also a business like a sole trader

  1. Research Proposal on Ethics and Accounting - Accountants; A Dying Breed.

    For example by depositing and drawing checks between accounts at two or more banks) their stock price and hedging (Hedging a cash commodity using a different but related futures contract, often done when there is no futures contract for the cash commodity being hedged).

  2. Event preparation.

    The media coverage contacts could be obtained from the last year's organization of the event. Also, the website from last year will be a big help as all that is needed is a re vamp to tidy it up a bit, and we have decided to change the logo slightly.

  1. The report lists out the benefits of keeping a proper accounting records and followed ...

    Good defense for tax: There would be nothing better than having a proper set of documents supporting the profits return filed to Inland Revenue when investigated by the tax inspector from a random sample return he chose. A summary of the bank statement is not sufficient and does not

  2. Develop my understanding regarding the production of accounts and their use for business decision ...

    at the end of the year. The share price. The share prices usually go up because the dividend is more attractive to buyers of share. Survival An important objective for almost all businesses is to survive. That means to at least break even or make neither any profit nor loss.

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