I work for C&V Fashions and I have been asked by my line manger to say what I think the accounting department’s role is in relation to C&V Fashions.
Accounting- the process of keeping financial accounts. The process of record keeping involves:
Book-keeping – keep accurate records of everyday transactions.
Accounting- using the books to come up with a report on the financial performance of an organisation to be used by the managers and external stakeholders of the business.
Purpose of Accounting
To keep track of all the financial transactions within the business.
It enables the business to monitor its own activities, helping to control finances, for example, identifying overspends.
Provides information for stakeholders – customers, suppliers, shareholders etc.
It could increase the chance of the business attracting possible investors.
It can reduce the possibility of fraud.
Keeping the records of the business accurate and up-to-date is vital for success and for the businesses ability to run smoothly. Business owners invest a lot of time and effort into the running of their business but fail to realise the importance of record keeping. All records must be recorded as it will be helpful for keeping track of all money that is coming into the business from sales and all money that is going out, such as expenses. If they don’t keep track of the money in business, they could find themselves not chasing payments that haven’t been made or they could be forgetting to pay bills. There is even a possibility of the business getting in trouble with HM Revenue and Customs (HMRC). If the business does record all of its transactions but they are recorded incorrectly, the financial performance cannot be reported therefore meaning the possibility of the tax payments being wrong.
HM Revenue and Customs- HM is an abbreviation for Her Majesty’s, it is a department of the British government that is responsible for collecting all types of taxes.
The records in the business should be updated in a regular basis which should then give a good idea of how the business is performing in the likes of sales, receiving payments, paying expenses etc. The owner would then realise where most of the money is being spent. Monitoring the businesses financial activity will help control finances, such as monitoring the sales and purchases made. It should also involve keeping a constant check on the bank balance to ensure that the right amount of funds are there to meet the everyday expenses of the business, such as bills/wages/suppliers etc.
Management of the business:
A manager is responsible for controlling a group of employees or an organisation. If the manager understands the accounts, it will result in better and easier decision making and the ability to plan the businesses future, meaning it is more likely that the business will succeed. The manager must ensure that there are sufficient funds to pay the employees’ wages, pay the businesses bills and order new stock.
Information for stakeholders:
Stakeholders will want to have access to the financial information if the business does not succeed, as they will be risk of financial loss. Stakeholders in the business include:
Measurement of financial performance:
The ability of finding out whether the business is making a profit or loss and what it owes or if it is owed, without financial records, this would be impossible. The key indicators of financial performance are:
Gross profit- this is the difference between the cost of purchases made and the amount of revenue received from sales.
Net profit- this is the smaller amount of profit after all of the revenue expenses have been taken from the gross profit.
Value owed to the business- this is the amount of money owed to the business by creditors, from sales that haven’t yet been paid for.
Value owed by the business- this is the amount of