Why accounting is important for businessAbhishek Kumar / 2020-01-30 05:54:23
Introduction- What is accounting?
Accounting is a detailed recording of a company's financial transactions which includes four main elements naming Sorting,Storing,Summarizing,Retrieving. These elements are presented in different kinds of reports and analysis.
#Why Accounting is Important for businesses?
Accounting is said to be the most important part of a successful business. It provides an overview of all the income, expenditure and also provides the financial status of the company and helps investors, management, and government to invest accordingly.
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#Three key advantages of accounting
1- It provides income statement which helps the company know about its profits and losses.
2- It provides a systematic balance sheet that helps the company to get a clear picture of their financial status for a particular financial year.
3- It provides a cash flow statement that acts as a bridge between the income statement and balance sheet statement and also reports the cash inflow and outflow during a particular financial year.
For a successful business, regardless of being big or small business. It is important to maintain clean financial records.
#Here are some other advantages of accounting:
1.) Evaluates performance of business
The operations and financial position of a business is dependent on the financial records for all companies. Accounting is a method to make one understand the status of their business in comparison to their competitors. Maintaining clean records will also help the business keep record of the expenses, upcoming debts, cross margin and will also help the business to compare its current financial growth from its previous financial growth.
2.) Statutory Compliance
Accounting will inform the business that all types of liabilities like sales tax, income tax, pension funds, etc. are properly addressed.
3.) Creating Budget and future projections
A budget or future projections can only be created if the current financial position is known to the business. And this financial position is determined by the financial records. Businesses tend to compare their previous financial year’s profits to the current financial year. If the growth is in the increasing order then the budget can be fixed accordingly. This can only be done if a proper and regular clean accounting takes place.