accounting essay examples

accounting essay examples

The Importance of Accounting in Business

1. Introduction

Financial accounting offers precise information, but management accounting has an essential role to recognize and assess financial reports that demonstrate business performance, taking into account the process of cost management. Financial accounting also indicates the financial terms of a business, its period of liquidity. In contrast, management accounting is concerned with predicting future movements, supervising finance transactions and investment decisions, thereby tracking business performance and providing additional reports for business development.

Many persons think that accounting and finance are the same, but this is completely wrong. Accounting is recording financial data, examining and analyzing it, and then converting it into reports including revenue transactions, expenses, outcomes, costs of products, financial positions, and cause, and these reports determine the financial position of a business. On the other hand, financial management is concerned with the allocation of business resources to increase management efficiency, and economic sub-periods, including processes involving financial commitments. It is the process of planning, identification, management, and regulation of corporate resources.

Financial accounting relates to presenting financial information in the form of financial statements, which is prepared at the end of each accounting period. It helps us understand the financial positioning, the profitability of the business, and like other information.

Accounting is often called the “language of business” because accounting is what a business uses to communicate its financial information to others. These “others” might include outside investors who are considering investing in the business, competing businesses who want information to help them operate more successfully, governmental or regulatory agencies who want to make sure the business is paying all of the required taxes and to make sure the business is complying with all laws and regulations, or to the business’s own managers who are responsible for the internal operations of the business.

2. Role of Accounting in Business

Accounting provides the company with structure and stability through the use of criteria-based guidelines. It is one of the oldest and most secure professions in the world because accountants have built and tended a distinct community of either men or women, formed under a common profile which is that of guardians of public interest. In this community, experience, solidarity, discipline, and a sense of hierarchy represent important personal and professional virtues. Accounting provides a variety of logistics techniques for automated financial reports on the operating performance of businesses. Accounting ensures effective investment decision making by allocating limited resources where there are opportunities with the highest likelihood of achieving the company.

The main aspect of an accounting function is to record the financial transactions in the book of accounts and prepare accounts and financial statements. Such statements include trial balance, trading and profit and loss account, balance sheet, final accounts, report, and highlights the performance of the company in the form of figures. It provides complete financial information to the management. From the trading and profit and loss account, statements like trial balance, trading and profit or loss account, statement of changes in financial positions, balance sheet, funds flow chart, cash flow statement, etc. In the financial statement, the profitability of the company, the solvency of the company, the performance in terms of ratio from previous years, and even the performance of the company on the annual report can be evaluated.

3. Benefits of Proper Accounting Practices

This means that he will readily get to know places where his business stands vis-a-vis others, an intelligent financial position. Another benefit of proper accounting practices is that the accounting records help in the preparation of financial statements to the proprietors of the business. The freehold of assets of a business cannot be ascertained by anybody, including the owner, without some form of accounting system. Apart from the proprietor of the business, accounting records are also necessary in the preparation of appropriate reports to be filed to the government concerning the business performance. Similarly, some reports will also have to be dispatched to other business partners, such as the Board of Directors, shareholders, etc. All of these are facilitated by the accounting system. This means that the law has also laid down principles of how accounting records are to be prepared and from which components. The Ministry of Finance needs certain data, it wants revenue figures of the company, and it can only obtain them from the company’s accounting records.

Now, to the question, what are some of the benefits of proper accounting practices or proper bookkeeping practices in business? One of the first benefits one will observe is that proper accounting helps the business owner to know the financial position of his business. The expenses, the revenues, the profit and loss of the business are all sooner or later made known to the business owner in a summary form as a result of adopting an accounting system. Not only that, but the owner will also get to know what the business owns and what the business owes in terms of assets and liabilities.

4. Challenges in Accounting

Different views were issued about the location of accounting within vocational schools. Parakkal/Asmaa (2011) argue that the training of accounting has importance in vocational schools, along with different educational facilities. Dent (1901, s.99) argues that accounting is never an ornament in education. Accounting is one of the basic education needs of every young people, as it is closely related to the daily facts of everyday life and because it is extensively used at work life. Therefore, accounting deserves all the attention especially in vocational schools, he emphasizes. Shaikh/Shaikh (2013) stated that accounting as a university subject aims to create qualified leaders in the future society who have enough accounting knowledge and experience to be able to solve economic problems, and who are also responsible and especially innovative thinkers. Even if not everyone who attends the universities are future accountants, everyone needs a good understanding of the accounting and the accounting processes in their professional lives. Albu (2008) believes that universities have to honor themselves by teaching enough accounting and other technical and economic skills to meet the requirements of the organization and the community to successfully implement reforms in the implementation of academic courses.

A study, which was carried out by evaluating students who registered to the accounting department of the vocational school, is significant regarding both the students’ vision about accounting and what they experienced and the policies of the school in trainings in different dimensions, as well as their opportunities. In the study, in which face-to-face interview technique was applied, the students were asked to define accounting, to express the advantages of being an accountant, to define different accountants in social media, and accountants who have influence on the society, to express the advantages of being an accountant and to explain the profession of accounting. The expressions made by the students in the interviews were categorized and the answers provided in the categories were examined and compared in terms of each variable. Hiremath (1990) mentions about the chaos that recently happened in the accounting field because of globalization of economics and unbalanced ethics and values and declares that there is a necessity of a widespread perspective about education of accounting area to include all the innovations.

5. Conclusion

In conclusion, one must recognize and appreciate the role of accounting in business culture because, for the development of an accurate and complete financial audit, the steps of accurate recording and classification of accounting documentation, its processing, transformation, representation in management information systems, and thus obtaining useful and accurate financial information for those responsible for business management are also required. The absence of accounting or weak preparation of accounting in a company generates a lack of financial information. Information is the basis of the economic development of a company.

In fact, without doing any accounting, whether your business is small or large, you may suffer from serious financial challenges, and the end result would be bankruptcy. Therefore, that’s why accounting is very important to any business. To understand the importance of accounting in companies, it is good to know how to write easy accounting that starts with its definition. Accounting is a science that studies the generation of financial information about any economic entity, how that information is organized, presented, and interpreted. To understand the importance of financial information and the role it plays in a successful business, it is necessary to know the technical terms used in accounting. It is a science that is based on systems and procedures, the development and analysis of financial information issued by businesses for the decision-making process.