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The Importance of Keeping Accurate Accounts.

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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.


* 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.


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.

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