Business annual financial
accounting report is the most important of internal and external users of other
company.
Internal
Financial Accounting
For the success business
it is important to maintain accurate and up to date records for the following
reasons:
- Tax Fulfillment
It is required by the
Revenue commissioners. Tax fulfillment is compulsory for every business so
maintenance of proper books and records are essential to ensure accurate
reporting of income and expenditure and the timely and accurate return of
payroll and VAT returns.
- Performance Measurement:
The most important
users of financial accounting information about a business must be those who
manage the business on a day to day basis. Furthermore, every business should
have a business plan and an annual budget to measure actual performance of the
business. Information about sales revenue and gross profit, together with
levels of expenditure on operating cost is critical to the operation of the
business. Operational decisions must be made constantly and these can be
dangerously wrong if made on the basis of inaccurate or out of date
information.
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- Planning and budgeting
Business plans are not achieved
just for loan applications or grant claims. Of course the business plan is
an important requirement for obtaining internal and external support but if it
is not a real plan for a real business then it is a recipe for
disaster. The old saying states that if you fail in your plan. That can be updated
to state that if you fail to plan honestly, accurately and realistically you
will plan to fail outstandingly, unsuccessfully and financially. Simply put,
when you prepare your initial plan you require feedback from your accounts
system to measure your business performance against the plan, so that early
corrective action can be taken. When you subsequently prepare your annual
budgets past performance measured by your accounts system forms the basis for
future projections.
External
financial accounting
For external users too,
financial accounting and reporting is of extreme importance:
- Existing (include yourself) and potential investors
Your accounts give a
clear picture of the financial standing of the business to existing and
potential investors, helping them in deciding whether or not to invest.
Financial accounting also gives you up to date information for existing
investors about the future of their investment.
- Banks
For the requirement of financial
accounting bank can support loan applications and borrowing facilities including
overdrafts.
- Suppliers and Clients
Suppliers often take
decisions about extending credit to companies based on information extracted
from accounts. Also clients, especially PLC's or large multinationals often check
the financial status of potential providers of goods and services before
awarding contracts. The absence of up to date financial accounting statements
to demonstrate capability to fulfill contracts can be costly.
- Tax Authorization
A current tax clearance
certificate is required by semi-state and state companies as well as local and
central government departments prior to awarding contracts. There are also an
increasing number of private sector companies who are insisting on tax
clearance as a requirement to trade. A tax clearance certificate can only be
obtained from the Revenue Commissioners if all taxes are paid up to date and
all returns made. Needless to say, having accurate and up to date accounts is
necessary to achieve this.