Financial records like purchases and sales are important to any business. Proper records of these transactions offer crucial information used in forming administration decisions. Other benefits include the ability to forecast and anticipate future changes in the economy. With the topic being approached with a certain disdain, it is true to say it is crucial for any business to do it.
The following are ideas of how to maintain a simple and understandable financial recording system.
1. Concentrate on materiality
Materiality is a concept that is important in the preparation of the financial records. For data or information to be material or immaterial depends on whether the information disclosed can be used by an entity to make economic decisions. The international accounting standard board provided a framework of how to deal with materiality. Firstly, important information should not be hidden by generalizations or by giving irrelevant information. Secondly, remember that materiality should be applied in all parts of the financial records. Lastly, materiality applies even in the case of specific disclosures and in some instances it renders such information unnecessary.
2. Work on the content and presentation
Another way to make the records simple and understandable is the use of plain language. Using technical words in presentations can bring confusion, ambiguity and limits the number of people who access your information. Disclosure can be made clearer and more concise by avoiding repetitions, avoiding acronyms, using passive voice and lastly by using good grammar. It is also important to use the right formats of presentations for easier access. Lastly, if the research on stakeholders’ needs is done right it may provide a chance to incorporate cross-referencing. Doing this allows the users to access any needed additional information that makes it easier for them to understand.
3. Use a more condensed approach
This is where during financial reporting only a set of selected financial statements, explainer’s literature, and support notes are used. Interim reporting allows you to provide less information on a report as it is assumed that it is an update. Based on that fact, it is expected that the report will have detailed information on the new financial changes. Ultimately there is no need for repetition of recent financial statement information. Though it is not a must to use the condensed approach disclosing more information than needed may cloud the significant changes. All in all, information disclosed depends on you and what goals you want to achieve through financial reporting.
The above points are instrumental in making your financial records simple and understandable. It is advisable that you continue to look for more optimal ways to approach information disclosure.
Author Bio: Gerald Hunt
After graduating from the University of Calgary with a Bachelor of Science degree in Computer Science, Gerald joined KPMG (Formerly Thorne Riddell) as a Computer Accounting Customer Service representative. In this position, Gerald installed accounting systems in over 200 different, small to medium sized companies over a 6-year span. In 1989, Gerald left KPMG to continue to work with small business clients in his own corporation installing computer accounting systems. While in this role, he was engaged by the DeVry Institute of Technology in Calgary to teach various courses. In time, Gerald moved up through the ranks of DeVry until he attained the position of Director of Finance for the Calgary Campus. He also acquired his Masters of Business Administration from City University of Seattle, Washington in 2001. Gerald’s career has always been focused on small business, accounting, and education.
Need accounting help? Visit Padgett Business Services, and book a free no-obligation one-hour consultation.