Every small business is required to keep bookkeeping records to produce at the end of the financial year a set of accounts to show the sales income, business expenses and the net profit for tax purposes.
Medium and larger businesses employ account clerks, bookkeepers, and accountants to maintain financial records and produce regular accounting information.
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Small businesses and in particular self-employed businesses have a choice in how the financial accounts are prepared and produced.
A small business may employ the services of a bookkeeper to produce the accounts while another similar business may keep a manual record of financial transactions while a third option is to use a bookkeeping software system.
There are several advantages and disadvantages to whichever course of action a small business may take to produce the financial accounts and at the outset, it is better to make a definite decision on which route to take. Financial accounts, financial control over the business activities and the knowledge of how well or badly the business is performing are crucial to success in the business environment.
The underlying necessity is that if the small business does not make a decision on its financial accounting then at the very least it must accumulate documents of prime significance such as sales invoices, purchase invoices and possibly bank records during the financial year and assemble these into some sort of order after the end of the financial year for tax purposes.
Failing to keep financial records often results in a succession of administrative burdens and often also leads to financial penalties if taxation deadlines are not met.