The Importance of Accounting
1. Keeps a record of business activities
Accounting is important, as it maintains an orderly record of the organization’s financial information. Recent records help users compare current financial information with historical data. With complete, consistent, and accurate records, it enables users to monitor company performance over a period of time.
2. Assists in management decision-making
Accounting is very important for the internal users of the organization. Internal users can include people who plan, organize, and manage companies. The management team needs accounting for making important decisions. Business decisions can range from deciding to pursue an expansion space, instead, to improve efficiency.
3. Forwards results
Accounting helps to communicate company results to various users. Investors, lenders, and other lenders are the main external users of accounting information. Investors may decide to buy shares in the company, while lenders need to analyze their risks in deciding to borrow. It is important for companies to gain the trust of these external users with relevant and reliable accounting information.
4. Meets legal requirements
Proper accounting helps organizations ensure the accurate reporting of financial assets and liabilities. Tax authorities, such as the U.S. The Internal Revenue Service (IRS) and the Canadian Revenue Agency (CRA), use standard financial statements to evaluate all declared earnings and gross income. An accounting system helps to ensure that the company’s financial statements are reported fairly and accurately.