Yyy1
Badges: 2
Rep:
?
#1
Report Thread starter 4 weeks ago
#1
May sound like a stupid question, but I dont understand why small businesses need bookkeepers to create income statements or balance sheet statements for them when their income and expenses are literally in their bank statements...
0
reply
MindMax2000
Badges: 16
Rep:
?
#2
Report 4 weeks ago
#2
It depends if the business uses accrural accounting or cash accounting. Accrural accounting will mean that all revenues, assets, and liabilities are not accounted for. Other adjustments you will need include provisions for bad debt, depreciation. Petty cash transactions won't be accounted for in bank statements.

The financial statements will also present a clearer picture that you can't see from a bank statement alone e.g. the financial performance of a company (income statement), and the financial position of the company (balance sheet). You cannot see what assets and liabilities you have just by looking at what items there are in the bank statement. Debtor and creditor accounts may contain balances that you can't see in a bank statement.

On a bank statement, you can mistake equity/loans injected into the company as revenues, and asset purchases as expenses. VAT won't also be properly accounted for, as it comes out every quarter/month, and it's not correct to account for VAT as part of operating expenses.

If the business is simple, does not charge VAT, based solely on cash accounting, requires no start up capital, has virtually no assets or liabilities, you may get away with saying that what you see in your bank statements is what the financial statements will be, but it's unlikely.
1
reply
X

Quick Reply

Attached files
Write a reply...
Reply
new posts
Back
to top
Latest
My Feed

See more of what you like on
The Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.

Personalise

Should there be a new university admissions system that ditches predicted grades?

No, I think predicted grades should still be used to make offers (620)
33.68%
Yes, I like the idea of applying to uni after I received my grades (PQA) (775)
42.1%
Yes, I like the idea of receiving offers only after I receive my grades (PQO) (364)
19.77%
I think there is a better option than the ones suggested (let us know in the thread!) (82)
4.45%

Watched Threads

View All