Question

Discuss why is it important for a company to stay up with or current with recording transactions? Does timeliness make a difference when doing accounting? Discuss.

Answer 1

Recording the transactions or keeping the books of Accounts upto date is not only ethical practice but also a legal requirement in most of the countries in the world.

It has been made mandatory through Legislatures to keep books of accounts current.

It is very important for a company type of organisation that it keeps its records current which will in turn facilitate the flow of useful financial information in timely manner.

Timeliness for sure makes a difference when the things come to accounting. For e.g. companies have to pay various taxes or they have to make various legal payments each month, if the records of the company are not upto date then there will be delays in such payments leading to interest, penalties and loss of reputation. Further company may have to face legal actions if it does not make such payments in timely manner.

In various Laws companies have to declare their quarterly, half yearly and yearly results along with audited financial statements. If the company's records are not updated in timely manner how will the preparation of Financial statements, getting financial statements audited and publishing it's results in front of stakeholders in timely manner be possible?

Not only from legal perspective but also from operational perspective, doing timely accounting is of very much help. For e.g. if a company provides 45 days or say 60 days credit to it's customers, how will company come to know whose payments are overdue if it's records itself are not updated.

TImely recording of transactions in effect facilitates cashflow management of the company. If there are transactions pending to be recorded, how will the company know its real cashflow and it will further miss on projections.

Timely recording may act as a checker on fraudster which may not be the case if there are delays in recording transactions. Possibililty of missing out on recording transactions is also there if there is no timely recording of transactions.

Given the fact that a company may be a subsidiary of some other company it's books are consolidated in the holding company's record. If the subdiary company fails to keep its records upto date consolidation procedure will get delayed.

Timely recording of transaction facilitates proper cut off procedures and it eases adherence to periodicity concept.

Coming to conclusion, It is utmost important for any company to keep its records current in today's vibrant fast changing competitive world.