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

The two main reasons why it is vital for a business to keep accurate accounting records

Extracts from this document...

Introduction

Jocelyn Hunt - AVCE Business Studies Financial Accounting - Assignment One Question One: The two main reasons why it is vital for a business to keep accurate accounting records is 1. For legal reasons to do with acts enforced by parliament and 2. To record the performance of the business. Every year companies are by law required to produce a set of accounting records that show a true and fair view of its financial position. Copies of these records then have to be filed with the Registrar of Companies at Companies' House and sent to every shareholder and debenture holder. The Companies Act 1985 states the minimum amount of information that has to be included, although many companies see it as a public relations opportunity and produce information on staff, products and other areas of the business. This is done in an attempt to make other parties such as shareholders aware of the company and of future developments. No matter the size of a business they must all comply with the legal requirements of the Companies' Act 1989. From a practical point of view, if a company did not make any records of transactions carried out, it would prove to be impossible for them to evaluate the performance of the business or even compare it with another companies' performance. Good record keeping can show whether the business is improving, which items are selling and what changes are needed. ...read more.

Middle

These have evolved over many years to deal with various practical problems that may arise in accounts. If Accountants did not follow these rules then it would be impossible to compare one firm's accounts with another and to monitor past performance within a business. Also a consistent record of this information can be useful for people wishing to assess the firm's financial stability, such as bankers, investors and trade creditors. The first and most important rule is the Concept of Prudence. When this convention clashes with another, it is normally prudence that overrides all others. This concept states that when there is either an optimistic or a cautious approach to be had, the cautious approach should always prevail. Profits should never be anticipated and losses should always be recorded as soon as the organisation is aware of them. The operation of this convention stops the common problem of managers overstating the financial position of the business. For example, if a firm was paid �20,000 for a contract but the management are certain that final cost will be �25,000, they should charge the �5,000 loss to this year's profit and loss account. However, if the management believe that the work will be completed for �17,000 then the �3,000 profit must not be shown in the profit and loss account until it has been earned. Another situation where a pessimistic view should be had is when valuing stock. ...read more.

Conclusion

Items should only be recorded in the accounts if it is considered to be worthwhile to do so. For example, in a delivery firm with 100 vehicles, it would not be seen worthwhile to calculate the amount of petrol in each vehicle. The Accounting Standards Board are responsible for the regulating of financial statements and strive to improve the standards of financial accounting and reporting for the benefit of users. This is done by enforcing Financial Reporting Standards (FRS's), which are documents that detail all aspects of the accounting practice. These reports cover issues such as cash flow statements, mergers and how to report financial performance. Jocelyn Hunt - AVCE Business Studies Source Of Reference > Name: Financial Accounting Author: Peter Atrill and Eddie McLaney Gained information on concepts and conventions. > Name: Essential Accounting for Managers Author: A. P. Robson Information acquired on performance measurement. > Name: Accounting and Finance Author: Humphrey Shaw Attained information on concepts and conventions, taxation and Company Acts. > Interviewed a Mr Graham, practising chartered accountant in Gerards Cross. Gathered information for questions one and two. > Interviewed a Mr C.Ward, owner of a medium sized agricultural firm. Acquired information on VAT an corporate tax. > Internet: Progress Interventions - http://www.pinterventions.org/good_record_keeping.htm Information acquired on the importance of keeping accounting records. > Internet: Financial Accounting Standards Board - http://www.fasb.org/ Information on accounting rules and regulations. > Internet: Official Inland Revenue website - www.inlandrevenue.gov.uk Information on Taxation. 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Accounting & Finance 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 GCSE Accounting & Finance essays

  1. Compare the two companies Tesco's and McDonalds

    Keep the food process reasonable for the customers so that the company grows in profit and customers. Break even analysis A break even analysis is a comparison of companies revenue and its fixed and variable costs. The reason this is done is to identify the minimum sales level needed

  2. The purpose of this report is to explain the legal and regulatory influences on ...

    But SSSAP 9 stamped out this method being used. The principles that need to be adopted require stock to be fairly valued thus providing sound methods for valuation of stock i.e. AVLO. Separate consideration needs to be given to long-term contracts. Owing to the length of time taken to complete such contracts, to defer recording turnover and taking profit

  1. Accounting Concepts and Conventions

    However, it is very often the case that it is not until a period later than that in which the sale took place is it realised that the debt is a bad debt. Therefore, to try to bring into the period in which the sale was made a charge for

  2. This report has been produced as evidence for Unit 9 - 'Financial Services' - ...

    you can take up too 25% as a tax free lump sum). An annuity is basically an insurance policy for the rest of your life - it will pay out for however long you go on to live. An annuity is the way in which you convert the money you

  1. Complete Report on Askari Commercial Bank

    The duplicate DD has the same controlling number. The bank officer inform the drawee branch of the loss of DD that DD is lost and until duplicate is issued, payment will not made even original is received. Telegraph Transfer The transfer of funds by means of fax or telegram is called telegraph transfer.

  2. Compare the final accounts of two organisations explaining the similarities and differences.

    And which will be discussed her below. Identify the main legislations that determine how both the sole trader and the partnership accounts are presented and submitted. For a sole trader they will need to keep careful records, they must define personal transactions, for example taking stuff from your own stock and if working from home, they must

  1. International Accounting Standarts

    A suffrage exists by listing goodwill (however, then higher taxes need to be paid). 2) Costs for developing and research can not be activated. IAS: 1) In IAS is every item an asset, as long as it is going to serve for an increase in business activity and turnover; tangible, as well as intangible.

  2. Harmonisation of accounting standards in Europe

    They have decided, that, apart from small amendments to old standards, any new or revised standards will be labelled 'International Financial Reporting Standard' (IFRS) so that the new Board's work can be distinguished from the old one. Their objective was the harmonisation of accounting standards and to promote the use and application of these standards.

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