Accounts Analysis
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"Those people
who do not analyse their accounts may as well wear a blindfold
when running their business"
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Accounts analysis is without a doubt the main tool
that the Inland Revenue has when it comes to analysing people's
businesses to see if they are being honest in their tax submissions.
This means that if people do not analyse their own business, guess
who will?
The main analysis focuses on a person's Gross Profit
Percentage (GPP) and the expectations are that almost irrespective
of their turnover, their GPP should be at or about the same. However,
some small variations due to the economies of scale are accepted.
The GPP is quite easily calculated as shown:
Sales: |
£1,000 |
Cost of Sales: |
£650 |
Gross Profit: |
£350 |
| GPP: | 35% |
If, in the above example, at a later date someone
sees their GPP change to 15%, their costs must have increased significantly
and they will very quickly need to find out why. If they do not,
they have serious problems. Alternatively (again using the above
example), if someone's GPP becomes 65% at a later date, they should
try and find out if something is missing; if nothing is, why have
they made so much money in this short space of time? In the latter
situation, if all is correct, past exercises and changes should
be continued to enabe that person to be more profitable. However,
it is more than likely that they will have missed one or more costs
somewhere along the line.
Accounts Analysis is all about analysing sales
first of all, then analysing all of the costs incurred in
making those sales. This should provide a complete picture of money
in and out of that person's business. There are other analyses that
can be used, all of which help to give people a better insight into
the running of their business.
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