Explain the purpose of keeping accurate financial records

Controlling and planning the activities of a business such as SPA Ltd is a critical concept of a business succeeding internally and externally. The financial situation of any business such as SPA Ltd must be monitored and handled effectively, taking considerations of information being accurate and well planned for presentation. Without, SPA Ltd having accurate financial information, the business may not perform effectively internally and externally and may incur problems suffering from financial position and legal status.

There are many purposes of which accurate financial records are kept. One of the main particular records is used to present information to inform the stakeholders of SPA Ltd, which it is legally entitled to present accurate financial position at a certain time. The whole purpose of presenting the current financial status of SPA Ltd to its stakeholders is to inform them of how well the company has progressed through the year. As SPA Ltd is a large company business, with a large yearly revenue, it has many stakeholders connected to the business internally and externally. Internal stakeholders

These are stakeholders of SPA Ltd, where they contribute on expanding its efficiency and yearly financial revenues. These are the main types of documents which are used to accurate identify the financial position of SPA Ltd. The process of the ratio analysis will follow the evaluation process of SPA Ltd Company and its final financial status. Profit and Loss Account This is a financial statement which represents the revenue that a business such as SPA Ltd may have received over a period of time, and the corresponding expenses which have been paid.

The profit and loss account shows the profit and the uses to which the profits have been put. By law SPA Ltd does not have to put every detail of overheads incurred. Moreover, the law tats that companies such as SPA Ltd must follow one or two standard formats set out in the Companies Act. Here is a basic format which is used by SPA Ltd and other companies: This is the basic format which may be used by companies such as SPA Ltd to present their financial information to the stakeholders. However, as SPA Ltd is a limited company, by law they must produce financial results of any changes to the structure of the company. This is stated in the (FRS 3 Reporting Financial Performance). Moreover, it states that the statement must produce the losses and gains of a company and the changes of its shareholders.

Balance Sheet This is a statement of a firm such as SPA Ltd’s assets, liabilities and owners equity at a specific date in time. Basically this gives a snapshot of which direction SPA Ltd is heading. From the balance sheet when the liabilities and owners equity is added, it represents the sources of capital and the assets represent the uses of the capital. In addition, the two sides of the accounts must balance as every penny made as capital has been used for some purpose.

In a balance there are formats and layouts which are used to present the information. Unlike the profit and loss account document, there are different terms for which the balance sheet consists of. As you can see from above, the ratio analysis is very important in providing information of a company such as SPA Ltd. This is because the ratio analysis will give a precise indication of how a company or SPA Ltd may be generating profit, its liquid position, controlling credit and debit periods etc… The ratios used can give an overview of what a company may need to do to improve the efficiency. This is why it is important that accurate finance information is correct, as the financial figures will be used in all aspects to see how well a company is doing. In the case, if there is a wrong figure it may provide wrong evidence which may result in wrong decisions on the company.

Using the financial documents of a company or SPA Ltd, the documents will have to be assessed. This is undergone through a procedure where, checks are made through previous years to see if there is any improvement of the company or SPA Ltd. The financial information received will be cross referenced with all documents such as, profit and loss, balance sheets, cash flows and ratio analysis from past years. After checking the accuracy of the financial data, it will provide a solid outcome of the situation of the company or SPA Ltd, and what needs to be improved on. In addition, the documents of finance may be cross referenced with other competing company’s that have the same aspects and basis of SPA Ltd or any other company. The cross reference procedure will provide the stakeholders or managers and directors of SPA Ltd and overview of what needs improving and changing to increase the stability and chances of surviving in the market. Furthermore, it also shows why it is important to have accurate financial information, perform at high standards and keeping up with potential competition.

Furthermore, SPA Ltd or any other company must undergo to follow legal requirements, where importance of accurate financial records is vital in keeping stakeholders of the company informed. Every limited company whether public or private is required by law to produce financial statements which are available for the public to inspect if they so wish. The law which stated that these legal requirements must be fulfilled is the Company Act 1985.