Financial Accounting and Procedures Required in a Company

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To form a limited firm in the UK, following few documents are needed to send to Companies House for registering it: IN01 application form to enlist a firm which includes

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One address for the firm’s registered office,

Different type of articles,

Also pre defined names and address for the directors of the firms,

It also includes the statement for the initial and total capital (paid up or un paid) and the initial number of shares that company is going to offer.

If the application includes a prescribed or sensitive word or expression or according to application if any other document demands by the company house, company has to fulfil to proceed the registration process.

Requirements for Registering Public Limited Companies (PLC)

Before any business can start operating as a limited company in UK, it has to be registered with the Registrar of Companies at Companies House. IncorporationA is the process by which a new or existing business is formed as a company and can sell its share in stock exchange to gather share capital.

A public limited company (plc) must fulfil these requirements:

Company that is going to be limited must show that it has at least two directors – who may also be members of the company.

The company also must have the one individual director at least.

The selected directors for the company should be aged 16 or over 16.

The company must also have one qualified secretary at least.

You cannot choose a name for the firm that is the same as an existing firm. It does not include any receptive words and jargon that need sanction from Companies House. For example, a firm is not authorized to select a name which comprises words that are potentially misleading, such as ‘international’ if the company is operating business only in UK.

When the plc firm is free to operate its business?

Unless the company house provides the trade certificate to the firm it cannot perform its operations and that the certificate will be issued by the company house when the company has the minimum required capital and this minimum amount for capital is £50,000 for UK plc business.

It is common concurrence that employees are major stakeholders because employees have the direct impact on performance of company and equally they have interest regarding their salaries, benefits and careers.

Shareholders

Shareholders of the company hold the shares which make them owners and mostly they are considered to be top priority stakeholders of the company because of their ownership. Since shareholders are owners of the company so they have desperate concern with business and this makes them the top stakeholder of firm.

Management of the company

It is somehow notorious debate among business personnel that management of the company is stakeholder of the company or not. Freeman and Evan supported the view as managers are directly involved to keep balance among the other stakeholders demand and fulfil them wisely and this extra responsibility of managers include them in stakeholders of the company.

Controversial, but some believe that managers are stakeholders As the managers also employees of the company but their high responsibility towards company’s performance make them a separate stakeholder from employees.

Creditors

Creditors or suppliers of the company also somehow involve in the ownership if company provides them the security by offering them right of sales of the assets which make them stakeholders. Creditors also have high interest because of their lending amounts which they offer to the company and interest payments which they get back from company. If the company performs poor that means there is risk to lose their payment and interest hence this interest makes them stakeholders.

Trade unions

Since trade unions also have somehow impact or effect on the decision making of the company and this makes them the stakeholder of the company.

Customers

Customers of the company are also very key stakeholders. Because sales/profitability of the company depends upon customers and equally company’s policies also affect the customers and their buying attitudes.

Suppliers

Often considered a stakeholder because company gets raw material for production and equally suppliers have to get payments in result of these raw material supplies. So this interest makes the suppliers as one of the key stakeholder of the company.

Government

Government is also stakeholder as government has high interest in any company regarding the tax. High the profit high the tax company has to pay.

Local community

The local community around the company where it operates the business is also included into the stakeholders of the company. Corporate social responsibility concept is an emerging concept and very important in company’s growth so this shows that the local community around the company is also stakeholder of the company.

Stakeholders’ interests (conflicts among the interests of firm’s stakeholders)

Since each of the firm has different stakeholders and these different stakeholders have the different benefits and interests in firm. These different interests may create conflict among the stakeholders and also create trouble position for the management.

Common concerns of the stakeholders

Company’s stockholders and the employees’ have the common concerns with the company because they both want company earns high profitability so that company may return them with higher return and salaries.

High salaries, job security, growth of the business, and high dividend are the interests of the shareholders and employees which are commonly associated with the high profitability.

Creditors and suppliers also have the high profit interest in company because it may provide help to the company to return back their credits soon.

Conflicting Concerns of the stakeholders

Increase in wages and salaries in shape of high return may affect on the dividend amounts.

Management often concerned with high profit and further investment of that profit into the business which may sacrifice the dividend for shareholders.

By investing the huge amount of profit on growth of the company may not bring the positivity in society and management may postpone the aim of community and environment betterment.

Reasons for Monitoring the Financial Performance of Business

All the stakeholders and stockholders of the company are in favour that efficient corporate governance needs the defined rules and regulations in company. The main principle of all stakeholders is to get timely and accurate information regarding their each concerning matter. To make it sure a company should practice the fair procedures and policies to monitor its financial performance so that the goal of disseminating the right information to the right person at right time can be fulfilled. Monitoring the financial performance of business provides benefits in following ways:

Transparency

Full exposé of non financial and financial information let the stakeholders to approach on transparent information. If there is no transparency into financial system a company may face fraud and can deceive the stakeholders with mislead information. So to avoid these all scams a company should have to implement and follow the monitoring system that transparently expand all the financial information to company’s stakeholders.

Answerability

Accountability is very necessary to monitor the management performance whether it is performing in favour of the company or not and if necessary replace the management. There must be authentic, independent and authoritative body to monitor and control the management performance.

Fairness

Equitable treatment of investors and their investments is another reason to implement the monitoring system. Through proper monitoring system a company can ensure that the money of investors is properly and fairly invested into profitable investments. If there is no monitoring system company may lose its profits by investing into wrong investments.

Responsibility

Ensuring the corporation fulfils its proper role in society by investing something for the betterment of community.

Profitability

Is the business profitable or it is facing loss. How to manage the operations of the company to increase the overall performance and what suitable financial structure should be adopted by the company to generate and manage the business finance. What corrective measures a company can adopt to change its loss into profits. How to manage the profitability and even can enhance the profitability. What will be the suitable combination of policies for the company? So, all above questions indicate that without financial monitoring system a company cannot answer these questions.

Size

Whether the company has enough growth or size to produce the desired level of profitability? What the key changes that company should have to implement in growth, finance and operating performance to achieve the desired profitability?

While checking the current financial resources company has to invest accordingly. May be currently company has available funds but due to higher cash outflows this could create problem for company in future. So after monitoring the size of company and size of investment, company should have to invest to achieve profitability from the investment.

Growth

Can the business grow to maintain or improve its long-term competitive position? What is a sustainable rate of growth for this business? Would the project provide the growth to business? A company can get answers for all such questions by implementing the continuous monitoring on financial performance of the company.

A balance sheet is a main statement in the annual report that shows a current economic situation of the form at a specific point, and this financial statement is presented at the end of each fiscal year, but for the accounts of management, short-term financial statements can be prepared by the company which can be prepared at any date.A 

It consists of the firm’s long term assets, short term assets, short term liabilities, fixed liabilities and provisions, the abstract of which is the net assets, or shortage, of the company.

Profit and loss account

The profit and loss account is another chief statement in the annual report that shows a firm’s performance over a specific time period.A Being a firms’ performance report the profit & loss account explains the financial gains and also explains how the firm has done the fair business during this fiscal year and what profitability the firm has earned or what loss company has suffered. The profit and loss account includes of sales and all other sources of income generation for business, direct costs of business, overheads and expenses, financial costs and the government tax payable expenses.

The Linkage

Regardless of being two entirely different chief financial reports the balance sheet and the profit and loss account are somehow linked between each other. As the bottom part of the balance sheet report includes the profit and loss reserves, which indicates the profit retained by the company by not paying the full dividend to its stockholders with the future investment purpose.

So in short the balance sheet statement provides overview of the financial health of the company at an accurate point, in contrast the profit and loss account statement expresses the financial gains of the company for the whole/current fiscal year.A 

Both balance sheet and profit & loss statements have their own benefits and useful to review and analyze the company’s financial position, however without assessing and viewing both statements financial position cannot be judged by individually viewing any of statement.

Above statement can be backed by the following illustration that if a profit & loss statement presenting the huge loss and would be de moralised its market worth and owners interests but having look on the balance sheet might clear the idea which shows the company’s provision has further increase may cause the reduce profitability and loss.

Provisions are simply an “accounting entry” that influences profitability but not the cash-flow of the company, so on the basis of this the presentation that company is not performing that bad as profit & loss statement has showed.

Conclusion

Both statements profit & loss account and balance sheet statement are as significant as each other and no solitary statement is measured to be more helpful than the other. To completely understanding the company’s financial performance where the reader of accounts need to know what the balance sheet and profit & loss statements are but also to know the relationship between these key statements and how positively and negatively they interact with each other.

 

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Financial Accounting and procedures required in a company. (2017, Jun 26). Retrieved October 6, 2022 , from
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