Accounting's function has evolved throughout the ages in response to changes in economic growth and social needs. It measures, classifies, and summarizes a large amount of data from an organisation, and then reduces that data into reports and statements that reflect the financial status and results of that enterprise's activities.
As a result, it is considered as a business language. It also serves a service function by delivering quantitative financial data that is useful to users in a variety of ways. Accounting as an information system gathers and disseminates economic data about a company to a broad range of stakeholders. Accounting information, on the other hand, is quantitative and financial in nature, and therefore does not offer qualitative or non-financial information. These constraints of accounting must be kept in mind while interpreting accounting data.
Why Is Accounting Important?
Keeping track of revenue and expenditures, assuring statutory compliance, and providing investors, management, and the government with quantitative financial information that can be utilized to make business choices are all important functions of accounting in the operation of a successful company.
Your records produce three important financial statements. Those are as follows:
Benefits of Accounting
If you want to keep your company viable, it is essential that you maintain your financial records clean and up to date. Here are just a handful of the reasons why it is critical for your company, no matter how large or little!
It is important that your financial records accurately represent the outcomes of operations as well as the financial condition of your small company or corporate entity. To put it another way, they assist you in understanding the financial situation of your company's operations. In addition to helping you keep track of expenditures, gross margin, and potential debt, having clear and up-to-date accounting records will allow you to compare your current data with prior accounting records and allocate your budget accordingly.
It is responsible for ensuring statutory compliance.
Legal requirements differ from one state to another, but implementing sound financial management procedures in your company can assist you in meeting all applicable requirements when it comes to ensuring statutory compliance. Sales tax, VAT, income tax, and pension funds are just a few of the obligations that will be handled by the accounting function.
It assists in the creation of budgets and future projections.
In the world of business, budgeting and future forecasts may make or destroy a company, and your financial records will play a critical part in this process. To ensure that your operations remain successful, business trends and forecasts are based on past financial information. This financial information is most useful when it is supplied by accounting procedures that are well-structured.
It is beneficial in the preparation of financial statements.
Financial statements for businesses are needed to be submitted to and filed with the Registrar of Companies. Listed companies are obliged to register them with stock exchanges, as well as with the Internal Revenue Service for direct and indirect tax filing reasons, among other things. It goes without saying that accounting plays a crucial role in each of these situations.