THE IMPORTANCE OF ACCOUNTING
As well as being necessary for the preparation of Income Tax Returns accounting plays a major role in tracking the performance of a business.
Many small business people fail to recognise the benefits of regular accounting information.
During the year there may not be the need to prepare complete financial statements, but regularly monitoring the following indicators will make the businss owner more aware of his financial situation and give him information which will enable him to plan, react and put into place actions to improve business health:
| cash balance |
| sales (dollars, number of sales, units) |
| accounts receivable ($, average age) |
| inventory |
| work in progress |
| orders received |
Changes in financial position can be sudden, such as the following instances:
| loss of a major client |
| large uncollectable accounts receivable |
| legal action or fine for breach of regulations |
They can also be subtle with a gradual decline leading to a crisis, such as the following instances:
| growth in sales without increasing funds for working capital |
| excessive drawings by owners |
| poor profitability |
| ageing plant and equipment. |
It is therefore important to track financial performance on a regular basis.
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