1st Bac - Legal and Administrative Formalization

 Administrative and legal formalization

It is important to keep account of the transactions registered in the financial accounts of a business. This accounting must be done for two reasons:

o   Administrative Formalization: The constant review of the financial accounts will help the entrepreneur to obtain vital information about possible losses, thefts and misuse of the resources that make the business work. 

This information also helps with decision-making about the price of the product and to know the gains or losses the business is generating.

Within the administrative formalization it’s important that the entrepreneur keeps a cash flow statement, where they register the daily income and cash outflow of the business.

Date

Description

Income

Cash outflow

5/12

Payment to flour supplier

 

$300

5/12

Day sale (bread)

$150

 

 

o   Legal Formalization: When an entrepreneur responsibly meets the legal requirements when it comes to keeping the financial accounting of the business, it formalizes the operation of the business and immediately reflects the good image of the business to potential clients.

The entrepreneur must be aware that if the business shuts down temporarily due to non-fulfillment of legal requirements related to taxes, it will give the business a bad image.

According to the tax law, every time a sale is made, the business must issue a bill or other sale slip. This will help the process of financial control of the business.

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