Why financial accounting is crucial to any organisation?
Financial accounting is concerned with the performance of the business and is targeted primarily , but by no means solely, at external users of accounts. It is backward looking,dealing with past events and is required by the law. It encapsulates the reporting of financial statements at periodic intervals-often quarterly or annually-to shareholders and other stakeholders such as the government. Albeit the reporting requirements may differ in terms of whether a business is structured as an unincorporated or incorporated entity, a statement of profit or loss and statement of financial position are mandatory for all businesses to prepare.
Importance of financial accounting to a company
The statement of profit or loss comprises revenues earned and matches it against expenses incurred for a given accounting period to derive the profit or loss. It enables an assessment of the financial performance of the firm and is necessary for settling the amount to be paid in tax to HM Revenue and Customs. Tax calculations based on the statement of profit or loss may not necessarily be the final amount paid since this will be contingent on the tax amount agreed with HMRC. In contrast, the statement of financial position portrays a ‘snapshot’ of the financial state of affairs of the company as at a given date. This is often used to assess the liquidity position of the company through performing vertical and horizontal analysis.
Important factors that show how financial and taxation services in Coventry is important to a company:
1. Fulfilling Tax Obligations
Maintaining accuracy in bookkeeping makes preparation of accounts easier, especially with the advanced accounting systems available in the modern day. With our cloud accounting systems, you need not wait until the submission deadline to find out what the tax damage is and whether the sufficient funds are available to make the payment. With our effective practices ensuring that returns are filed well before the due date, you know which accountants to turn to when considering the tax return preparation in Coventry.
2. Calculating ratios
These enable existing and potential shareholders to compare accounts with previous years and with alternative companies to judge the performance. Ratios range from profitability to liquidity and shareholder returns. Comparisons can indicate how effectively management have carried out their stewardship function in terms of the utilisation of resources to generate profit and ensure the financial stability of the company.
3.Ensuring Statutory Compliance
Laws and regulations vary from state to state, but maintaining proper financial accounting and processes will help you ensure statutory compliance when it comes to your business. The law requires companies to maintain detailed record of their transactions for at least 6 years. That’s a lot of paperwork! With our book keeping software,however, we can ensure your offices and home are paperless and reduce the administrative effort required. An accurate bookkeeping software can also ensure payments are made to those entitled to receive them when appropriate,debts are paid when they fall due to avoid incurring penalties and fines unnecessarily.
4. Assisting management in decision-making
Financial accounting statements help you to understand where your company stands currently in terms of profitability and liquidity. Absolute figures and ratios can be compared with targets to gauge the extent to which the desired outcomes have been achieved and areas of the business where additional attention is required. Effective remedial action should prevent similar mistakes from occurring again in the future.
If you are interested in a successful future from a personal or business standpoint, reach out to our professional accountants in Coventry. A single call can make a difference while considering tax, audits, accounting, litigation support accounting, or business advisors.
