accounting

The textbook definition of accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. In business, accounting stands for all that and is a deciding factor in a business’s financial heal

 Accounting is usually handled by a bookkeeper or an accountant in small businesses or by dozens of experts in big firms. Various accounting reports, such as cost accounting and managerial accounting, are vital in assisting management in making educated company decisions.

Accounting gives you access to a wider and clearer view of your company’s financial health and informs you if you are profitable, your cash flow, the net worth of your assets, liabilities, and equity, and in which areas you are losing and profiting. Think of accounting as a process in which the input is raw financial records and output is a picture of your company’s financial health. 

Advantages of Accounting– 

Accounting is important in a company because it allows you to track income and expenses, assure statutory compliance, and offer quantitative financial information to investors, management, and the government to assist them to make business decisions.

  • Maintaining Permanent Business Records: There will be hundreds of transactions made in a particular year and this makes sure that all of those transactions are recorded so that in an audit you can easily prove that all of the transactions are valid.  
  • A Systematic Arrangement: Accounting is a method of recording business transactions in books of accounts in a methodical manner. It is a comprehensive and methodical portrayal of commercial interactions. Accounting records and analyses every business transaction. 
  • Making a Decision: Accounting assists the decision-makers in making better judgments regarding selling pricing, cost reduction, and sales rise, among other things by providing a profound and comprehensive view of the financial state of the company at any given time. 
  • Business Valuation: The business is valued accurately and fairly. Accounting aids in obtaining the right picture depicted in the balance sheet, which is utilized to calculate the purchase price. 
  • Assistance in the financing of loans: Loans are obtained by business owners in order to expand their operations. Financial institutions make loans based on the profitability of the company. This can be determined by reviewing the company’s financial statements. 
  • In court, evidence: All business transactions are recorded in books, which can be used as evidence in court. 

Why Is Accounting Important for Business Owners

Accounting and business are as inseparable as a frosty with fries. But why is that? 

Here’s a comprehensive list of 7 reasons why Accounting is so important for business owners- 

  1. Accounting helps you stay organized. You wouldn’t know or even understand how much money your company is actually making if you don’t keep track of all transactions that are taking place and that need to take place. Accounting tasks involve keeping track of your company’s financial status. It keeps you organized so you can fill out your tax return correctly at the year-end.
  1.  It supports your tax return claims. Everyone hates filing taxes, especially small business owners because it gets so messy that they don’t understand what even to begin with. This is where accounting becomes the fairy Godmother. Gathering financial data won’t be a horror for you if you resort to accounting.  
  1. Accounting keeps you responsible.

If you have shareholders, you must realize on a deep level you are held responsible for the success of your company. By reviewing your records, your shareholders can see your company’s growth and success. Accounting can also help you in holding your workers accountable. Your knowledge of topics like balancing bank statements and performing trial balances will come in super handy in detecting fraudulent conduct before it starts to take a significant toll on your company. 

  1. It directs decision-making. More than half of the important decisions that your company will have to make will revolve around the financial health of your company. After all, making a profit is the prime motive here. Accounting helps influence your decisions and helps you avoid typical business blunders such as overspending, underspending and plateauing. 
  1. New strategies can be quantified. It is likely that your team does a risk analysis before making a change in your company or product. But what about after the risk is taken? Accounting will explain everything to you. You have the figures for your company’s expenses and revenue prior to the change. You may then compare the numbers once you’ve made the change. That way, you’ll know whether your plan aided or harmed your company.
  1. It is required for obtaining investments or loans. Before investing or lending you money, investors, and lenders like to analyze the risk of investing in you or lending to you. That includes snooping around in your company’s accounting books. So you must keep your records safe and clean. This allows them to view your business as what it is instead of translating gaps in records as red flags. They will also be able to see your financial statements, financial predictions, and profitability claims accurately and substantially if your accounting books are organized.

Accounting is crucial in determining the success of your business. Pay attention to your financial planning, taxes and expenses. Your business will be far more likely to experience lasting success as you pay attention to these details.

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