The Vitality of Keeping Accurate Accounting Records for a Business
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 …show more content…
Without these essential accounting documents problems can soon arise. The absence of a profit and loss account would mean the business were not keeping a sufficient eye on the outgoings and incomings of the firm, possibly causing them to slip into debt by spending more funds than they actually have available to them.
However, the main issue with not completing accurate records is concerned with value added tax (VAT) and corporation tax, which all companies have to pay. Corporation tax is the tax deducted from a companies profits and this is done before any dividends are paid to shareholders. By not having the appropriate and accurate information available, a company would have no sure way of telling if they were paying too much tax in relation to profits made or if they were not paying
enough tax, which would be seen as fraud and would accumulate into a large debt in the future.
Also, firms have to maintain accurate records to deal with the quarterly VAT returns that have to be produced. If exact records have not been kept then a business will not know how much VAT they have to pay or how much they have paid and need to claim back from the inland