Why Accounting is Necessary for your Business?
While many of us have heard the term accounting once in our lifetime but how many of us know what accounting is, and why it is important in business.
If you are also one of them then let us get the information on accounting and why it is important for businesses and how it is beneficial.
Why Accounting is Important
Before we dig in for the importance of accounting let’s share a few words on what accounting is. Well, accounting is the systematic and detailed recording of all the financial transactions of a business.
There are many types of accounting based upon the uses of accounting, such as accounting for big businesses, accounting for small businesses, accounting for the forensic department, government and management accounting.
Whatever the organization is and for what purposes accounting is used, it always plays a vital role in running the business and organization.
It helps the businesses keep a record of income and expenditures, provides investors, management, and government with quantitative financial information which can be further used in making essential business decisions.
It also ensures statutory compliance and helps in generating three key financial statements by the records of the income and expenditures.
First, the income statement provides the information required about the profits and losses incurred, second the balance sheet gives a clear picture of the financial position of the business on a specific date.
And third is the cash flow statement which acts as a bridge between the income statement and balance sheet and records the cash generated and spent during a specific period.
So now you can understand that how important is accounting for the business and without it, your business can be so much chaotic that you even don’t know whether you are making profits or losses.
Thus, if you want to keep your business afloat then you have to make your financial records clean and updated.
Benefits of Accounting
Now let’s have a look at the advantages that accounting offers to businesses and organizations.
1. Help to Evaluate the Performance of Business
If you want to know and analyze your business performance then financial records are the only source of doing that. They reflect the results of the operations as well as the financial position of your business.
So, when you choose to account for keeping track of your financial transactions and operations then you can keep track of expenses, possible debt, gross margin, and other related things.
2. Help to Ensure Statutory Compliance
Statutory compliances are very important for any business and organization and as rules and regulations differ from state to state only a proper accounting system will help you in ensuring statutory compliances.
This accounting system will ensure that liabilities like income tax, sales tax, VAT, pension funds to count a few are properly addressed and filed on time.
3. Helps in Creating Future Projections and Budget
Future projections and budgeting are an important part of any business that wants to develop and financial records play an important role in that. How, because you can only make future projections and budgets when you have historical financial data.
This data can keep your operations profitable, but this data will not be available if you didn’t use well–structured accounting processes.
4. Helps to File Financial Statements
For every business, it is required to file the financial statements on time with the registrar of companies and listed entities are needed to file financial statements with stock exchanges and for direct and indirect tax filing. And all this can be possible with accounting only.
5. Help to Keep Business Organized
Just think what will happen when you don’t know how much profit you have earned, or how much loss has incurred, or what debts you haven’t paid, what taxes are dues, and how much do you have to receive from your clients.
Yes, everything will be a mess where you can’t figure a thing about business in the finance department. And in this only accounting will help you and keep your business organized.
6. Helps to Back Up Tax Returns
Every business that is liable for paying taxes has to file income returns and GST return on time, and if haven’t prepared your financial records then it seems impossible to pay your taxes on time.
That is why accounting is beneficial for business as it also helps in auditing so that you have the important accounting information to back up the tax returns.
7. Helps in Decision Making
When you have records of your income and expenses, profits and losses then you can make necessary decisions for the business. Your decision-making always depends on the financial data of the business on the basis of which you can make important strategies.
So now you can understand how important accounting is for businesses and it’s better to keep the financial records updated and appropriate so that you can avoid any future penalties.