Accounting is one of the primary functioning arms in an organisation. It helps companies across the globe to gauge the business performance in accordance with different aims and goals set up by its management. Accounting is also a mandatory requirement to conduct an internal or external audit. In many jurisdictions around the world, including the UAE, local laws require companies to carry out external audits based on the companies’ size. Accounting and audit provide the current financial status of the companies. It provides a clear picture of the company’s balance sheet and financial health.
Backlog accounting is an integral part of the accounting process. It plays a very crucial role in understanding the business for the management and the shareholders. As part of the good practices, backlog accounting should always be considered part of the company accounts. Companies like Start-ups and SMEs that run on a small scale might deem recordings of business transactions as unimportant, but in a few years of establishment, it will prove difficult to track down on finances and business operations.
What are Backlog Accounts?
Backlog accounts are accounts of the company which remain unaccounted for. In the initial stage of the business, many businesses forget to update the accounts and record the expenses in the company accounts as they are usually maintained in an excel sheet or a rough ledger. It is very important to account for all the transactions to avoid backlog accounting.
Requirements to Update Backlog Accounts
In the UAE, Commercial law makes it mandatory to update the backlog accounts of a company. The accounts have to be maintained for a minimum period of 5 years.
Backlog accounts are prevalent in any business, as there will be multiple factors affecting business order closure. Fool-proof accounting of the backlog accounts helps to keep a check on the financial flow of the company. The information on backlog accounts can help the company’s management to make decisions to overcome any possible deficiencies in the structure. Backlog accounting will also help the company effectively manage customer demands.
