BTEC LAC Financial Transactions

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Reasons for recording financial transactions

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- Record/track income/inflows - Record/track expenditure/outflows - Ensure all payments are collected - Ensure all bills are paid - Ensure accounts are reported accurately - Ensure compliance with the law - Ensure correct taxes are paid - Measure performance - Predict future performance based on past data

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Advantages of recording financial transactions

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- Record the amount of cash the business should have at any one time - Keep a record of trade payables/expenses to ensure correct amounts are paid by the due date - Produce financial statements to measure performance - Keeps track of stock to assist with stock takes and reduce loss by theft - Maintain control of expenses to maximize profit - Be aware of how much the owner owes/is owed - Help comply with any legal requirements

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Disadvantages of recording financial transactions

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- Cost of purchasing and setting up the system - Cost of training the staff - Time spent changing from old system to the new one - Errors in transferring data to the new system - Cost of virus protection/updates

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Definition of Financial transactions

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Actions by a business that involve money either going into or out of a business e.g. making a sale or buying stock.

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Definition of Recording transactions

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Businesses need to keep accurate and up-to-date records of all the money coming into and going out of the business. A business which forgets or fails to do so can be in trouble with HM revenue and customs (HMRC) as payments can’t be processed and so tax may be calculated inaccurately.

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Definition of HM Revenue and customs

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Her (or his) majesty’s revenue and customs is a British government department responsible for the collection of all types of taxes.

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Definition of Management of business

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A manager is responsible for the planning, monitoring and controlling of the resources for which they are responsible. Managers who understand the accounts will be better equipped to make the right decisions for the business and plan for the future.

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Definition of Compliance

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Financial reporting is governed by laws and regulations to ensure that the financial records give a fair and accurate picture of the business. Investors and other stakeholders do not want to be misinformed and also helps to protect against fraud.

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Definition of Fraud

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When an individual acquires money from the company for personal gain, through illegal actions.

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Definition of Measuring performance

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A business needs to know if it is making a profit or a loss as well as whether it is owed money or was in debt to others. A business can also measure its performance through gross profit, net profit and sales revenue.