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Accounting is often confused with bookkeeping, which is the recording of transactions. These transactions are examined closely by accountants to produce reports and analyse finances and trends. Accounting will produce an overall picture of the company’s financial position.

Accounting is necessary for a company to make sound financial decisions and judgements. All businesses work with standardised guidelines called ‘Generally Accepted Accounting Principles’. These are the rules which are followed by businesses when they record financial data.

The use of technology
Many accounting practices are dealt with using computer software. This makes it easier to fully utilise the information at the touch of a button. A knowledgeable accountant will maximise the system’s potential to produce a complete overview of a company. Once transactions have been entered into a system, reports can be generated to indicate levels of stock, expenditure, receipts and much more.

HMRC and Companies House
Accounts are also necessary for a limited company to submit to HMRC and Companies House. Copies of the accounts are then issued to shareholder. The accounts are prepared using the figures which have been entered by a bookkeeper. Included in these is a profit and loss account, which illustrates the income and expenditure of a business and whether it has made a profit or loss during that financial year.Statement

The balance sheet indicates all assets of the firm, along with everything which is owed at the end of the financial year. The accounts also include a director’s report and an auditor’s report, and any notes concerning the accounts. One of the directors of the company has to sign the balance sheet, with their name printed alongside.

The other benefits
There are many benefits of accounting, as it is based on measurable information. The data which is used is verifiable and not based on opinions or estimates. If you want to query a figure shown in the accounts, you can generate a report.

Accounting also provides information which can help you compare your operation with other companies in the same industry. The reports which are produced are a vital tool for the management of any firm, and will help with important decisions. The financial information may also be used for external parties – including HMRC, creditors and investors – to help them come to their decisions on your business.

Accounting can be time consuming, which is why it is advisable to outsource to a professional.

 

 

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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