How to keep accounting in a joint-stock company? Joint-stock companies are usually very large entities operating on the domestic and foreign markets. Their accounting must therefore be kept in accordance with the rules imposed by law. How to keep accounting in a joint-stock company and what is especially worth paying attention to?
Full books only
Some business entities have the option of choosing between simplified accounting and full accounting books. Stock companies do not have such a choice. They must keep complete books of accounts. This means that every operation that relates to company assets must be recorded in them. What’s more, the books must clearly show how much share capital the joint-stock company currently has at its disposal. For this purpose, the “Primary Equity” account is used, although it may also have other names.
A joint-stock company is obliged to keep a share register in which it lists the shares, their types and owners. The entries in the share register must coincide with the entries in the capital accounts. A joint-stock company must also create supplementary capital, which is a security in the event of recording annual losses, not profits.
All, even the smallest, economic transactions must be recorded in the accounting books of a joint-stock company. Even the withdrawal of funds from the company account to the cash register must be recorded. Therefore, there is no possibility to dispose of the company’s money voluntarily. Everything that happens in its finances must be reflected in the books of accounts.
Accounting for investors
The accounting of a joint-stock company must be kept very carefully. There is no room for understatement or embezzlement. All this so that you can clearly answer a few questions. What is the current state of the entity’s finances? What is the capital structure? What financial problems may the entity encounter in the future? Of course, the answers to these and other questions come mainly from financial statements.
However, the entries in the accounting accounts themselves contribute to obtaining a full picture of the company’s finances. Investors, i.e. shareholders, are mainly interested in this image. Nevertheless, this applies not only to current shareholders, but also to potential ones. However, the company cannot run so-called creative accounting. Business entities often go so far as to attract investors, i.e. capital.
Meanwhile, in reality, you cannot falsify the picture of an individual’s finances. This is primarily prohibited by law. Moreover, such action is considered unacceptable in the eyes of society.
The auditor watches over the correctness
The accounting records of a joint-stock company are subject to periodic verification by a statutory auditor. Pursuant to the applicable law, the statutory auditor is obliged to audit the accounting books of joint-stock companies. So they have no choice but to submit their books to scrutiny. What exactly the auditor checks depends on the nature of the joint-stock company’s operations. Of course, the details are determined by the regulations. Nevertheless, if the statutory auditor notices any irregularities, he is obliged to carry out a thorough inspection.
The statutory auditor does not act “on his own”. He writes opinions on the accounting in the joint-stock company, which is attached to the financial statements. The auditor’s opinion is very important for shareholders and potential investors. The auditor primarily ensures that there are no illegal activities or financial embezzlement in the company. It checks whether the company does not conduct creative accounting. The role of the auditor in the audit of financial statements is not limited to the control of taxes paid. On the contrary, auditors often omit taxes, leaving their control to the tax authorities.
How to keep accounting in a joint-stock company?
Most joint-stock companies have their own accounting department within the company. The reason is that such a large number of documents cannot be handled by one person. Accounting by the owner of the company is basically impossible. Every transaction must be recorded in the books. In joint-stock companies, there are often from a dozen to several hundred purchase documents per month. Therefore, a good accounting program will certainly be useful in keeping the accounts of joint-stock companies.
It is best when it is combined with other modules, for example warehouse or HR. This will ensure an efficient flow of information between the company’s departments. Keeping the accounts of a joint-stock company can also be entrusted to an accounting office. Then, however, you have to take into account the need to pay a rather high invoice for it. The reason is that keeping the accounts of a joint-stock company requires a lot of work.
You have to remember not only about tax settlements. It is also crucial to submit financial statements or prepare reports on time, for example for banks. Hence, the price for bookkeeping for a joint-stock company can be really high.