accounting essay pdf

accounting essay pdf

The Importance of Accounting in Business

1. Introduction

Accounting has been defined as “the language of business” because it is the basic tool keeping score of a business’s activity. It is with this language that all business matters are expressed. Accounting can be broken into several areas of activity. Financial accounting is the preparation of financial statements that can be consumed by the public and the relevant regulatory bodies that oversee publicly traded companies. Management accounting is the preparation of information for internal use by business managers, not the public. It is a field of accounting that treats money as a means of measuring economic performance instead of as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of a business as well as the various uses of that money.

Accounting is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting, and communicating financial information. It reveals profit or loss for a particular period and the value and nature of a firm’s assets, liabilities, and owners’ equity. The end product of accounting information, also known as financial statements, is the primary means of communicating financial information to outsiders. Financial statements need to be prepared following certain broad accounting principles. In addition, to enable a business to report on its profitability and performance, certain accounting ratios and calculations need to be used. Finally, the accounting profession has a body of rules, known as the generally accepted accounting principles, which are the normative rules for the accounting process.

2. Role of Accounting in Business

Supervision of bookkeepers. Bookkeeping is a very important part of accounting. When you systematize your finances, then bookkeeping is easier. The bookkeeping function helps in maintaining financial data. A bookkeeper should record daily sales/other business transactions, undertake accounts, and pay your bills. If you fail to keep a bookkeeper, then your business could go broke within 3 months. Professional accountants know everything about bookkeeping. They can review your books in detail and make sure that everything is kept in accurate terms. Checking your books well helps you find mistakes early on as well.

Effective administration helps to handle conflicting interests between the management and the owners of the business. Accounting prepares and checks your business’s financial statements. Financial statements are the ones that make the business score high. Your statement of income and financial position explains a lot about the business. Your employees, shareholders, management, government, and clients establish the amount about your business from the accounting records you keep. You are required by law to keep full financial statements, whether you are a sole trader, company, or partnership. A business is supposed to prepare financial statements at the end of the financial year.

Role of accounting in business – Why is accounting important? Accounting plays a vital role in running a business. It ensures that the shareholders, creditors, management, and potential investors receive the financial information that they require. It also helps with making long-term and short-term decisions. So, what are the roles of accounting in business and why is accounting important? The following are the roles of accounting in business.

3. Benefits of Proper Accounting Practices

Proper accounting helps businesses keep track of revenue, expenses, and income. It provides a solid foundation for a business to track key performance indicators, analyze costs, and evaluate finances. This practice is beneficial to businesses because it ensures that income equals expenses. Accurate accounting also ensures that money left over after the business has satisfied its obligations. Small business owners can make informed decisions on how the surplus can be best utilized to enhance profitability. As a result, proper accounting or bookkeeping helps businesses avoid lawsuits and support healthy cash reserves. Proper accounting also helps organizations in making informed decisions. When organizations do not track their finances or make accounting errors, it may affect their success. Making informed decisions enables organizations to face the future with direction and purpose. It also enables timely financial forecasts and highlights any related internal or external business concerns to be addressed.

Accounting is the primary means of helping organizations to survive and grow by providing essential financial information for decision-making. The benefits of proper accounting should not be underestimated. One of the main benefits is that it helps in evaluating the performance of a business entity. Accounting provides information concerning changes in financial position, detailed information about income and expenses, resulting in a net profit. This enables various stakeholders to make informed decisions about a business establishment, enabling it to prosper and grow. This article discusses the importance or usefulness of accounting to businesses, organizations, and small business entrepreneurs.

4. Challenges in Accounting

There are also constraints that may at some point harm the information disclosed. For public accounting entities, the objective is to issue high-quality information because they need to maintain the confidence of current and potential investors. Quality information will help to build the investor base and to attract new sources of funding. This transparency should make it attractive to investors, and at the same time economical, because a growing unit base keeping costs low. In this need to produce quality and transparent information, the information management professional team must provide quality information with a possible impact on economic performance. So there is a tension between these two goals that may hurt the reputation of the accountant.

There are several challenges that affect the accounting sector today, meaning that accountants are forced to think about what they are doing and how they are doing it. Regulations, especially international ones, are developing at a staggering pace and require strict compliance. New technologies are moving towards robotization, reducing the possibilities of human error. The relevance of the knowledge/skills of the accountant increase, and the needs of the users grow. The requirements for accounting information issued by the company are developing overall. The achievement of this type of information requires a diverse accounting team with a great deal of knowledge, which at some point may be difficult to manage and retain. According to many studies, it is a real challenge to attract new employees into the profession, as one of the characteristics most often associated with the profession of an accountant is continuous study, as a way of reconciling continuous study with professional experience. Roughly, expertise or ethical characteristics of the accounting profession.

5. Conclusion

There are various types of accounting functions and activities identified over the years. Foremost, business owners need accounting to facilitate planning and control of their business activities. They need historical accounting information to formulate future plans and know that available resources are adequate to allow accomplishment. Owners also need to adopt a means of control over business activities. They are able to supervise, making budgets, controlling costs, and return on investment through the use of accounting. In addition, employees require accounting information to minimize strikes to set better terms for employment on related labor-intensive issues. Information conveyed by financial statements over time reveals economic progress or decline and indicates future opportunities, limitations, and challenges.

Accounting is both relevant and essential to the existence and growth of any business. It is relevant in that it provides essential information to many users to aid in making informed decisions as to the allocation of scarce resources. It is essential in that it forms the base and is, in fact, the very ingredient of any business undertaking. Accounting provides a panoramic view of how resources are continually transformed into desired results, usually in the form of goods or services. Over the age, recording of financial information has been influenced largely by business environment and the need to inform various stakeholders among other reasons. Accountants have a role of stewardship and must account for resource use and the results of the use. This role is vital given the resources characterized by limited nature and varied claims.