importance of accounting essay

importance of accounting essay

The Importance of Accounting in Business

1. Introduction

The importance of accounting in business is a topic that has caused a great stir in both professionals and non-professionals in the field. The main reason accounting as a scientific discipline is so essential is because it provides vital numerical information about several economic entities that have the main purpose of guiding business opportunities through the accurate use of any of them. Hence, accounting can be understood as a quantitative technique for decision-making, because since time immemorial merchant owners previously used accounting help to determine their business success by verifying the resources collected in money by business leaders, on the basis of the amount of the goods in a certain period, during this stage costs were also verified for what the final result was: their profit or loss.

From the beginning of the existence of the official form of business, accounting has been of great importance. The art of accounting, and especially double entry, has been a tool that has served to discover frauds and among other benefits. It has undoubtedly been the art that has allowed business to attain a prominent place in the economy, since through accounting the merchant could take the pulse of his business. The present study is aimed at investigating the importance of accounting as a quantitative technique for decision-making within the business context. Proven that literacy in accounting is a determining factor in personnel who are to be part of organizations, and is the central base of the data that organizations manage, it will lead to an increase in efficiency in their administration and control for business success.

2. Benefits of Accounting

The importance of accounting is that it is useful for users in general who are intended to help in day-to-day actions related to the economic activity of the organization in which they participate. At the same time, accounting provides several benefits to those who use its information. Having accounting information allows interested users to make decisions in the context of their economic or financial situation. As the company has a relationship with a significant number of people such as clients, suppliers, employees, government, local community, and others, the interested users mentioned above must be aware of the business activity so that they can improve their development, as well as provide quality, economic benefit, creation, and business growth.

Accounting is a key component of the business and financial world. The importance of accounting is particularly evident in the benefits of having useful and correct information for a business to make decisions about its future. In general, the classification of accounting is as follows: 1) Financial accounting, which provides financial or monetary information to its interested users; 2) Management accounting, which provides information, monetary or non-monetary, that is useful for making internal decisions in each section of the business, whether in production, marketing, human resources, or finance planning and administrative controls.

3. Role of Accounting in Decision Making

Assessing the financial strength of companies, nonprofit organizations, or public sector entities is the primary responsibility of the management accountant. Managerial accountants provide unbiased information that is essential to make ethical decisions. Data or information provided to decision makers should be ethically relevant for the decision of users. Therefore, ethical decision making suggests discretionary judgment that can likely affect others as well as the decision maker, and ethical claims reflect responsibility to others but also the responsibility to oneself.

According to the Public Company Accounting Oversight Board’s (PCAOB), the role of auditing financial statements is to provide reasonable assurance about the reliability of the financial statements and related disclosures. The auditor’s report jointly demonstrates the audit opinion, which informs the users of financial statements regarding the auditor’s opinion. The standards for audited reports offer users of financial statements reasonable assurance and trustworthy information that is employed in managerial decision making.

Collecting and classifying information, especially financial transactions, is a function of accounting. Financial transactions are recorded in various books of original entry, such as sales journal, purchase journal, receivable journal, payable journal, and cash journal. After a certain period, the information in these journals is summarized, analyzed, and recorded in the general journal in the presence of business transactions recorded in general ledgers. The changes that have happened for each account are summarized in general. The ledger is prepared from the general journal. Thus, financial statements are produced with reasonable effort. The financial statements are used by investors to understand how well the management is carrying out the business operation.

Role of Accounting in Decision Making. Accounting is also very essential for decision making, because it serves the management by providing relevant financial information. This information is not only useful for management, but for any other parties who are interested in evaluating the soundness of a company by making decisions, such as investors, financial institutions, government authorities, and employees. They will also need basic accounting information in carrying out their decision-making responsibility. In fact, the thinking is relevant to their responsibility, which provides relevant, trusted, and ethical information to decision makers. The important role of accounting in assisting decision making will be discussed further.

4. Accounting Standards and Regulations

That is, accounting statements are expected to be kept in conformity with the set standards given in this regard, and in case of range, it is expected that the most pervasive mainstream of those ranges should be followed. It is not only a repository of principles, it also provides answers to the students who are in the beginning of their professional career. In case of an accounting issue or problem that could not be solved or sorted out by any of the students of the profession, the right approach is to find out as to what the accounting for responding treatment in such similar sickness in a different context. Accounting standards being summation or crystallized wisdom, they are enormously useful as they minimize the expenditure of time and energy otherwise required examining a number of accounting treatments that could be given to a particular transaction by applying personal judgment.

Accounting professionals consequently act within the interpretation and application of accounting standards, precepts, and principles to ensure true and fair financial statements. Accounting standards are written policy documents issued by an expert accounting body or by the government or other regulatory body that contain all the basic principles relating to measurement, recognition, presentation, and disclosure of existing transactions and events. The standards help in reducing accounting alternatives as they prescribe such accounting treatment which is accepted as being the best from the point of view of the profession and also, in some sense, from the point of view of the public interest. It is an enabling tool because it helps the even-handed selection of accounting policies, where accounting standards exist, along with some flexibility where standards give discretion to adopt or merely recommend preferable accounting treatment.

5. Conclusion

Accounting is considered crucial to profitable business decisions. It provides measurable objective proof and information consistent for distributors in efficiently operating entities. There are accounting objectives that include financial statements, monthly reports, and warnings to be in complex systems, and then as through an available and converted in reasonable compared with the objective. Regarding the financial report, the editorial difficulty can be risky comments considering the financial complexity of the statement. To make a report, accountants have to explain the link because the report is not directly based on the numbers, inadequate equitability, and a system that is not offered in the subsidiary each year. This report will not recount their financial problems in this unique substance. Next, contemporary companies mainly concern themselves with the company’s financial failure, which is called financial ratemaking.

Accounting is the process of collecting, recording, summarizing, and analyzing the business’s financial transactions. It involves financial reports as a form of communication through the financial statements of the business or stock company. There are three types of accounting. First, financial accounting is employed to record, summarize, give meaning, and communicate financial statements to readers, including managers, regulators, owners, etc. It also involves reporting statements based on generally accepted accounting principles. Second, management accounting or planning and controlling is employed to make decisions, prepare lectures, and plan for budgeting and forecasting for the future. Stockholders such as managers, employees, and business insiders are essential to stockholder’s maintenance. Third, tax accounting refers to reporting the estimation of taxes for the preparation of the tax return with PPh basis such as Article 21. It supports good or bad planning, efficient business transactions that will satisfy the government. This report will affect the proper tax that is due and payable for every stakeholder of stockholders. As the profit comes, the tax comes satisfactorily, and the citizens of society will benefit. However, economies will grow because they are influenced by economic factors.