Importance of Accounting
In this blog we will talk about what is Accounting, Classifieds of Accounting, Importance of Accountings, Accounting Principle. So let’s know about the Importance of accounting before that we will know what is accounting?
What is Accounting?
Accounting is a process that records financial transactions. The process of accounting keeps tracks of any financial transaction that takes place in an organization or a business. This information is given in writing. Accounting is a method in which all the activities of the business are recorded and kept. For example- Accounting of business transactions, profit-loss, transaction of goods (buying-selling), property of the company, loan, etc. is regularized through accounting. To run any business, an accountant is needed, who tells the profit and loss of the entire business, when there is loss and when there is profit and how much tax is to be paid. How is the financial performance of the accountant business, what time management is managing, and what will be the profit for the company?
Accounting is as much a science as it is an art. Business transactions are recorded in it. Accounting follows all the transactions relating to a particular head. An account refers to a transaction record of similar transactions with anything or someone. Classifieds of Accounting in two categories – financial accounting and managerial accounting.
Importance of Accounting
Here is the importance of accountings: –
- Record of business transactions
- Ease of decision-making for management
- communication of results
- legal requirements
Record of business transactions
Accounting is very important for any organization as it keeps records of all the financial information of the organization. In accounting, records of all information are kept, and records are updated at all times, this helps users to compare current financial information with older historical information. Helps the users to calculate the performance of any company from time to time with accurate information records.
Ease of decision-making for management
Accounting is very important for the internal users of the organization. Internal users can include only those people who make plans for the organization. Do or run it properly. Accounting is essential for the management team to make any important decisions.
communication of results
Accounting helps in communicating the results of the company to various other users. Lenders, investors, and other creditors are the primary external users of accounting information. With this, investors can take the right decision in buying shares in the company. While lenders need to make a lending decision and analyse their risk. It is critical for companies to establish credibility with external users through reliable and relevant accounting information.
legal requirements
Proper accounting assists organizations in ensuring accurate reporting of financial assets and liabilities. Tax authorities, such as the Canada Revenue Agency and the US Internal Revenue Service, use audited accounting financial statements to measure net income and a company’s declared gross revenue. The accounting system ensures that a company Whether the financial statement information has been accurately and legally recorded in the reports.
main concepts of accounting
- Accounting is a term that describes the process of consolidating financial information to make it understandable and understandable for all shareholders and stakeholders.
- The main function of accounting is to accurately report and record the financial performance information of the organization.
- Classified of Accounting in two categories – financial accountings and managerial accountings.
Classifieds of Accounting
 Classifieds of Accounting in two categories –
Financial Accounting
In financial accounting, accurate financial statements are prepared. The main function of financial accountings is to accurately measure the performance of a business. Even though financial statements are intended for external use, management may also use them
Managerial Accounting
Financial accounting information is analysed by managerial accounting. It refers to the process of preparing reports on business operations. The reports assist the management team in making tactical and strategic business decisions.
Managerial accounting is the process that enables an organization to operate as efficiently as possible by reviewing accounting data, selecting the best next steps, and then communicating these next steps to internal business managers.
Basic Accounting Principles
Accounting principles are the guidelines and rules that companies and other entities should use and keep in mind when reporting financial data. These rules are used by accountants. These rules make it very easy for the accountants to check the financial data by using the methods and conditions as proof.
The accounting principles include the following: –
- accrual principle
- conservatism theory
- consistency theory
- cost principle
- economic unit theory
- full disclosure principle
- going concern theory
- matching principle
- physics theory
- monetary unit theory
- credibility theory
- revenue recognition principle
- time period theory
The most notable theories include the revenue recognition theory, the matching theory, the materiality theory, and the stability theory. Completeness is ensured by the materiality principle, as all physical transactions must be accounted for in the financial statements. Consistency refers to the application of a company’s accounting principle over time.