importance of accounting
Importance of Accounting
The importance of accounting and its scope has increased, as accountancy has not just remained a skill of keeping records. Deep analysis, compliance, rectification, and lawfulness have become some new integrals of accounting.
- From a layman's view, accountancy is keeping records of transactions. Thus, most basic and simple motive of such an activity is to keep a record for further use.
- This recorded data helps the person to determine the earnings and expenditures that have taken place.
- In addition, such records are also proof that such a transaction has taken place. The last basic intention is to determine fields where the income can be increased and expenditure can be decreased.
- Personal accounts are simple to maintain, but the double entry system accounts are quite difficult and complex. However, the double entry system is a preferred method, as this system is used to record and analyze money or money worth that gets transacted.
- In the world of business, the accounts and finance departments are engrossed in a daily activity of recording and analyzing transactions.
- The basic task is to first analyze the proposed transaction, and then sanction it and record it.
- The business world functions upon such daily routine juggling of transactional data.
- The further process involves making statements and presenting it to the management for further analysis and strategy planning.
- From the statuary compliance point of view, the process of accountancy must be done with the help of accounting standards prescribed by law.
- These standards provide the accounting department with a framework that has to be respected and lawfully followed.
- Another process that is a very important branch of accountancy is costing. The process of costing involves mathematically calculating the value of a particular transaction even before it takes place.
- Cost sheets which contain such information are also included in statements that are put before the management.
- Accounting data or information is used by a number of people, such as government officials, investors, and creditors.
- It is customary, and by law, compulsory for companies to present an annual report before the public that carries accounting information of the previous year.
- Such a report is often used as a conclusive evidence while calculating the tax liability of a business or a company.
- Apart from that, creditors extend their credit on the basis of such information. In addition, investors conduct balance sheet analysis on the basis of that information.