Financial recording is a process and procedure that is used by an organisation to control finance and accountability. This process and procedure include recording, verification and timely reporting of transactions that affect revenues, expenditures, assets, and liabilities. To develop business and making profit accountants have to keep financial records or information. There are some techniques for recording financial information that are given below:
- Double entry book keeping: It is an account technique which records each transaction as a credit and a debit.
- Day books and ledgers: A book with an account of sales and purchases made each day is called day books. For example: sales day books, sale return day books etc. On the other hand ledger is an accounting book of final entry where transactions are listed in different accounts. For instance: sales ledger, purchase ledger and general ledger etc.
- The trial balance: It is totaling of debit balance and credit balance to make sure that total debits equal total credits. From the trail balance figure end of the year an organization can make balance sheet of the business to show the financial position at a particular moment in time.
- Manual and computerized systems: Manual systems means those transactions are enter manually in business. It is a risky system for business because there are many chances to make mistakes. On the other hand those transactions are enter by computer is called computerized system. It is a very safety system and never makes mistakes. Nowadays most business systems are computerized systems. Because it can also keep more records than manual system.
In business there are many purposes and requirements for keeping financial records among of those this three are mainly important. That’s are:
- Legal requirements: It means when people start businesses they need to follow business rules, laws and regulations to run their businesses. Almost every business has some form of legal ruling. Particular forms, licences and other documentations is field with state and local government offices in order to begin. And these documentations may be tax forms, shareholders and payments etc. Without this documentation you may given up from opening.
- Tax requirements: In every business people must have to pay tax and this tax depends on business structure it’s called tax requirement. This tax also sometimes depends on business profit, business types, and business quality and so on.
- Internal control requirements: Internal controls are policies, procedures and mechanisms used to decline business risk. In order to check employees and member from committing a dishonest act the control must be via and wide. It helps business to run properly and to achieve business goals and also help to make good relationship between all business staffs.
In business there are some requirements for financial reporting and these financial reporting requirements are for sole traders, partnerships, limited companies and public limited companies etc. Financial reports are the documents and records that how much money your business is making or not or how much money your business have to pay or how much money your business already paid etc. Basically it is the documents of money transaction of all purposes that where your business invest money. There are different types of financial reports or statements. These financial statements can be cash flow statement it’s a summary of the actual incomings and outgoings of cash in a firm over an accounting period (month, quarter, year), it can be also profit and loss account it shows your business that how much money is your profit or loss. And the final statement is called balance sheet. It focuses on what asset the entity owns, how it paid for them, how much profit or loss etc. This statement is prepared at the end of the year. The purpose of financial reporting is to deliver this information to the lenders and share-owners (the stakeholders) of your business. Because in business we have mainly two types of stakeholders that’s: internal and external. Internal means those stakeholders are dwell inside the company for examples: managers, employees, board members etc. On the other hand those stakeholders are not directly a part of a company is called external stakeholders for examples: shareholders, customers, suppliers etc. Financial reporting must be part of the essential contract between you and them. Your lenders and investors have the right to know if their money is being spent wisely and returning a profit. Besides these the usefulness of financial statements are that: by doing this stakeholders can know that how much is their profit and loss, how do assets stack up against liabilities, where did the business get its capital, and how is it making good use of the money, what’s the cash flow from the profit or loss for the period, did the business reinvest all its profit, does the business have enough capital for future growth and so on.