The importance of accurate bookkeeping to financial management

  • Overview of Financial Statements - Analysis of financial statements
  • Regulatory framework of accounting
  • Governance principles
  • Exception reporting
The role of budgeting in financial management

This unit will focus on two main financial statements namely, the Income Statement and the Balance Sheet.

  • Most financial software packages will generate an Income Statement and Balance Sheet but it is important that you are familiar with the structure of the report.
  • Standard structure regardless of the business/industry. The structure and layout of these statements is important and allows ease of comparison and also facilitates exception reporting.
  • An Income Statement will summarise all the Income and Expenses for a given period of time. The end result will be the ‘Net Profit’ which is often referred to as the ‘bottom line’. For a detailed overview of the components of this statement, take a look at this videoclip: 


  • For solopreneurs, it is advisable to ask your accountant to prepare the Income Statement. They will ensure that is in line with tax regulations and it will be used to calculate your tax liability (or refund). However, if you are aware of the contents of this Income Statement, it will ensure that you record the correct information for its preparation.
  • The Balance Sheet is a snapshot of your assets and liabilities or more simply put, a picture of what you own and what you owe. This financial statement summarises the cost or net book value of your assets and also highlights all your liabilities.

TIPS

  • Most accountants advise their clients to keep as many records and receipts as possible. It is often easier for the accountant to remove unnecessary receipts rather than seek them months after the cost/sale took place.
  • While it may seem easier and less stressful to outsource this activity, it is important to remember that you are still responsible for the set of financial statements prepared and you will be asked to confirm that they give a true reflection of your business activity. For this reason, it is important to educate yourself in the overall purpose and function of these statements.
MyVA Project number: 2020-1-SE01-KA226-VET-092491
This project has been funded with support from the European Commission. 
The European Commission's support for the production of this publication does not constitute an endorsement of the contents, which reflect the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.
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