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.
Reasons for Updating Backlog Accounts in Company
Backlog accounts will provide the necessary insights to the company management on the management of funds and resources in the company, information on the effective auditing process, past data retrieval, future planning and making any real-time decisions, etc. Backlog accounting will help report generation to measure the company's performance in the financial year and foresee future growth.
- Ensures adherence to all compliance and legal requirements for the business
- Analyse the performance of the business over the past many years.
- Provides the transparency of the funds available with the company
- Help to plan the future course of action of the businesses
- Better allocation of the company capital resources
- Helps in retrieving the relevant data whenever required
- Ensures a smooth Audit Process with readily available data
- Understand the current expenses of the company as a percentage of the current account book
- Ensures clean accounts and attracts potential investors to leverage the opportunity provided by the business
It is very much advisable for all businesses, irrespective of the business's size, to carefully update the backlog accounts of the company. Updating the Backlog Accounts may find fruitful in the future when there is an urgent requirement wherein the previous years' accounts need to be scrutinised. It will further avoid all the possible legal hassles that may arise due to non-compliance.
Jaxa Chartered Accountants are one of the leading accounting companies in the UAE. With offices all over the UAE, we serve clients in all matters regarding bookkeeping and accounting. Our client-centric approach means the clients will have a worry-free accounting process to carry out business activities. Our experts will assist companies in the UAE with bookkeeping, accounting, auditing, payroll, and tax-related subjects. Please Contact Us for all your accounting related queries. We'd be happy to help.