It's important that your accounts are accurate and up to date so you can draw up 'true and fair' annual accounts. Your accounts should be backed up with full and detailed records of all business income and expenditure, such as receipts, invoices and purchase orders, payments in and out, etc. See the page on records required for producing a profit and loss account or completing a tax return in our guide on how to set up a simple profit and loss account for your business.
Following careful record keeping procedures can also help you with tax returns and prevent fraud or theft. Using a good record keeping system will keep you up to date and help you to:
If you are starting a new business it is essential that you get a proper record keeping system in place immediately.
You can use various storage methods to keep records - such as a computer, hard disc drive or CD - as long as they:
You should try to keep all original documents, and must keep any which show that tax has been deducted - eg your end of year certificate for PAYE (form P60).
For more information, see our guide set up a basic record-keeping system.
Detailed and up-to-date records will help you comply with tax legislation, deal with mistakes and avoid penalties. You can be penalised for:
Analysing your financial accounts enables you to compare your performance against previous years and with its competitors.
Ratios enable you to quickly compare relative values - eg two items on the balance sheet.
Ratio analysis can also be applied to non-financial data. For ease of reference, ratios are often split into the following areas of common control:
You can find guidance on key accounting ratios and ratio analyses on the Lloyds TSB website or see our guide on balance sheets: the basics.
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Institute of Chartered Accountants in England and Wales