Mr Chaudhry employs one accountant, Mr Andrew Collins, on a part time basis rather than doing the accounts himself. He explained that he himself, does not know how to present the accounts or how to draw them up, and as there are certain legal requirements it is more efficient for him to employ the accountant even thought Mr Collins comes in only once a week to do the accounts. The accounts are updated once weekly, mainly to keep the Profit and Loss account up to date so that accurate business decisions can be made, such as the amount of stock that can be purchased.
The main role for Mr Collins as the accountant at New Fashion Fabrics is to provide Mr Chaudhry with a clear financial statement of the position that the company is in. Using the accounting methods described above, Cash book, Profit and Loss account and Balance Sheet does this. Another of Mr Collins' roles is to prepare the accounts to show to the bank if they need to extend their loan. The bank will make their decision as to whether to give New Fashion Fabrics a loan or not on the basis of their accounts, which means Mr Collins is a vital part of the business' success.
Value of the account When asked 'How do you view the accountant's role to the success of your business? ' (From questionnaire, see appendix) Mr Chaudhry explained that he viewed the accountant as an essential part of his business. Without an accountant, Mr Chaudhry would not know how much money he had tied up in assets, he would not be able to budget his expenses, or forecast profit. The accounts show the cash flow in and out of the business, and can act as a warning device to show that profits have been falling and that costs need to be reduced.
As stated previously, Mr Chaudhry does not have the knowledge to draw the accounts himself, and prefers to employ someone who has been trained professionally. For Mr Chaudhry, Mr Collins, coming in weekly proves to be not only cost efficient, but also time efficient. Without him Mr Chaudhry would have to learn how to draw accounts himself and thus time and resources which could be spent towards the rest of the running of the business would be wasted.
Another advantage the accountant provides, is that he can offer an external, unbiased opinion on the company's accounts. He is able to give Mr Chaudhry advice without the influence of internal knowledge affecting his judgement. The purpose of keeping accounting information. The argument made by Britton and Waterston summarises the reasons that Mr Chaudhry employs an accountant for his business. Mr Chaudhry in the interview, when asked stated each of these points as reasons for having an accountant to control his books.
His main concern was for the third point raised "to provide a basis for taxation. " New Fashion Fabrics are a VAT-registered company, thus the accounts must be accurate, as at the end of the "VAT quarter" (Weetman 1999) the balance due must be paid to customs and excise. Mr Chaudhry explained that the Inland Revenue do have requirements. These requirements need to be met in regards to the legality of the business.
For accounts to be of use, they must contain up to date information, as old data may be useless. They must be presented in a way that they can be read easily and the information is clear. Titles and dates should be used so that it is clear which account is viewed. For accounts covering long periods of time the continuity concept must be referred to. By this, the accounts must be produced using the same layout and system from year to year so that they can be compared to one another if needed.
For more accurate accounts, additional information such as the percentage of depreciation on fixed assets and the provision for bad debts must be available to be calculated for future reference in the business. Conclusion By analysing the information we derived from interviewing Mr Chaudhry, the proprietor of New Fashion Fabrics, we can conclude that Mr Collins plays a substantial role in the success of the business. He gives a clear outlook on the financial position of the business through his presentation of the accounts, enabling Mr Chaudhry to make executive business decisions.
Although New Fashion Fabrics uses fairly basic accounting methods, Profit and Loss, Balance Sheets, and cash Books, they are suitable for the purpose and provide up-to-date information on the business' financial status. The accounts produced are used for two main purposes, taxation, and to keep an up to date view of the financial position of the company. Therefore Mr Chaudhry can keep an eye on the profit, loss and capital without the inconvenience of needing to worry about the affairs of taxation in the company.