Why Do We Need Financial Accounting?

Financial accounting and reporting is essential both for internal and external users.

Internal financial accounting

Within the business you should maintain accurate and up to now information for the following reasons:

1. Tax compliance

It is needed by the Revenue commissioners. Tax conformity is mandatory so maintenance of proper books and information are essential to ensure accurate reporting of income and expenditure and the timely and accurate return of pay-roll and VAT profits.

2. Measuring performance

The prime clients of economic bookkeeping details about a company must be those who manage the company on a day to day base. Furthermore, every company should have your own strategic strategy and a resulting yearly budget to evaluate actual performance against. Details about sales revenue and gross profit, together with levels of expenses on expense are critical to the operation of the company. Operational choices must be created constantly and these can be alarmingly wrong if created on the reasons for incorrect or out of time frame details.

3. Planning and budgeting

Business plans are not just for programs or grant claims. The strategic strategy is of course an important factor for obtaining exterior assistance but if it is not a actual strategy for a actual company then it is a occur. The old saying states that if you fall short to strategy you strategy to fall short. That can be updated to condition that if you fall short to strategy genuinely, perfectly and sensibly you will strategy to fall short marvelously, disastrously and financially. Simply put, when you get ready your initial strategy you require reviews from your information program to evaluate your company performance against the strategy, so that early remedial action can be taken. When you subsequently get ready your yearly budgets past performance calculated by your information program forms the base for upcoming forecasts.

External Financial Accounting

For exterior clients too, financial accounting and confirming is of extreme importance:

1. Current (include yourself) and prospective investors

Your information gives the answers of the financial standing of the company to existing and prospective traders, helping them in deciding whether or not to invest. Economical bookkeeping also gives you up to now details for existing traders about the long run of their investment.

2. Banks

Financial accounting is needed by financial institutions to back up programs and existing borrowing facilities including bank account borrowing.

3. Suppliers and Customers

Suppliers often take choices about increasing credit to organizations based on details produced from information. Also clients, especially PLC's or large multinationals often check the financial status of prospective providers of products or services before giving agreements. The absence of up to now financial accounting statements to demonstrate capability to satisfy agreements can be costly.

4. Tax Clearance

A current tax approval document is needed by semi-state and condition organizations as well as local and central go departments prior to giving agreements. There are also many private sector organizations that are requiring on tax approval as a precondition to trade. A tax approval document can only be obtained from the Income Commissioners if all taxes are paid up to now and all profits created. Unnecessary to say, having precise and up to now information is necessary to achieve this.