Task 1: (P1)

Reasons to Keep Good Accounting Records

When it comes to keeping good records we all seem to acknowledge that things could be done better.

But why is keeping good records important?

Here are twelve reasons why it’s so important.

1. Enables you to succeed in your business and expand it

No one knows your business better than its owner, but reliable and relevant information can only be
acquired from the records you keep. If an entrepreneur doesn’t have good financial records, it’s very
tough to make good decisions.

2. Helps business to be reasonable when dealing with customers and suppliers

Producing invoices, quotations and estimates quickly is vital. An early estimate can be the difference
between winning and losing a contract. Similarly do not rely on supplier’s statements. You need to know
before they tell you how much you owe.

3. Makes it easy to prepare management accounts

Have you ever wondered whether you are making or losing money? Management accounts do that for
you. You want to know how your business is performing. With management accounts you can compare
one period with another, this year with the previous year.

4. Makes it possible to find important information and documents quickly

Is someone disputing your invoice? By being organised you can quickly and easily find information
regarding the original order and the goods and work supplied.

5. Makes it easier to get a bank loan or overdraft

Yes, banks like it when you seek an overdraft for the right reason and at the right time. Don’t wait until
you need one to ask for it.

6. Helps you plan in advance for tax payments and other liabilities

Tax planning is for everybody. Set money aside when you have the cash. Or make an arrangement with
tax organisation in good time.

7. Helps us to check your tax position accurately

Does tax organisation make any mistake? Sometimes they do. By being organised you can check the
accuracy of your tax position.

8. Helps to reduce your accountant’s fees and save them time

We will always help by giving you extra value for your money. But if records are really untidy eventually
this will cost you more.

9. Makes you filling your tax return easier and can save you tax

Have you ever had a call from your accountant wanting to know about a VAT Return or some other item
of expenditure? Maybe he needs to make a claim to TAX ORGANISATION for Tax Relief. By being
organised you are sure to include everything you are entitled to in any claim or return you make to TAX
ORGANISATION.

10. Avoids interest and penalties by making it easier to pay the right tax at the right time

Penalties are here to stay!!! But we are here to avoid them. By the time a deadline comes everything
will be filed and in good order.

11. Will support your claims to some tax reliefs or capital allowances

What are capital allowances? They are provisions that can save you a lot of tax when you purchase
equipment or similar assets. Don’t miss out on the opportunity just because you have lost the
paperwork.

12. Record keeping complies with the law

Good record keeping is a legal requirement under the rules of assessment. So, by being organised not
only you have all of the above benefits, but you stay within the law. Complying with TAX ORGANISATION
requirements is in fact a very important reason why you should keep good records.
P2

Definition of Capital Expenditure

A capital expenditure is an amount spent to acquire or significantly improve the capacity or capabilities
of a long-term asset such as equipment or buildings. Usually the cost is recorded in a balance sheet that
is shown under the heading of Property, Plant and Equipment. The asset's cost (except for the cost of
land) will then be allocated to depreciation expense over the useful life of the asset. The amount of each
period's depreciation expense is also credited to the contra-asset account Accumulated Depreciation.

Examples of Capital Expenditures

Examples of capital expenditures include the amounts spent to acquire or significantly improve assets
such as land, buildings, equipment, furnishings, fixtures, vehicles. The total amount spent on capital
expenditures during an accounting year is reported under investment activities on the statement of cash
flows.

Definition of Revenue Expenditure

A revenue expenditure is an amount that is spent for an expense that will be matched immediately with
the revenues reported on the current period's income statement.

Examples of Revenue Expenditures

Examples of revenue expenditures include the amounts spent on repairs and maintenance, selling,
general and administrative expenses.