Bookkeeping and Accounting

What Is The Importance Of Accounting?

Choosing a skilful accountant is important for a firm. But many often, companies neglect this part of the organisation. The articles provide the necessary information that states what potential loss you can suffer by eliminating accounting and why is it important?

A company or a business that grows to a certain level where the operations can’t be performed with the owner’s finance alone. Thus some sort of funding is always needed for the businesses that want to scale them, and that is where the importance of accounting comes into play. The person who invests their money or gives funding is an Investor. 

So long story short, investors require proof of the company’s prior performance to determine if the business is investable. Thus, without accounting, it wouldn’t be possible to represent the stats and company data. 

From the above example, it is quite clear how the accounting department of a firm can play a crucial in the success of the company. Before upgrading or hiring an accounts team, it is necessary to know what accounting is and its benefits?

What Is Accounting?

Accounting, in general, is referred to as managing and monitoring a company’s financial information and data. The ultimate goal of accounting is to conclude to report the profits and losses, total cash flow and performance of the company in a financial year.

It is important to summarise the data and analyse it. This way, a meaningful piece of information can be presented to stakeholders and investors. Also, it is useful to provide the government with the right amount of tax. Accounting is a summary of transactions that the company had in past periods.

Apart from that, accounting is compulsory for every size of business. These facts and data collected after accounting can be used to take future decisions on behalf of analytics and trends. Moreover, cost planning of new projects and scaling the company’s economic achievement are other reasons accounting should be performed in every company.

As in any other field, accounting also has two employment types. The ‘Bookkeeper’ and Certified Public Accountant. Bookkeepers are usually called to fix domestic financial problems or microbusiness accounts. At the same time, Certified Public Administration (CPA) are highly trained to work under load and pressure. Additionally, they are taught to examine, solve and conclude financial achievement and target of the company. 

Types Of Accounting 

1) Financial Accounting

As the name suggests, this accounting mode includes monetary transactions and the generation of annual financial statements. The conclusion of the accounting is then presented on the balance sheet, the income statement, and the cash flow statement. These are complex data and require a professional CPA to handle the case. These CPA has a great team of auditors to perform the tasks more efficiently.

As already mentioned, stakeholders and investors have the full right to track the financial progress of the business, which is the importance of accounting. Financial accounting also helps to retrieve the data regarding progress. For this, some principles and standards are followed; International Financial Reporting Standard is one of them. 

2) Managerial Accounting

Once all the data is retrieved from the records, these are then presented in a systematic manner using Managerial Accounting. This means setting the data so useful information can be derived from it. Thus, the main goal in such accounting is to provide reports, charts, graphs, etc., to the management team. Later, these can be used to make decisions, prepare strategies, and other tactical planning for the next period. 

This branch of accounting holds great importance to the company as it can be used as a tool to enhance efficiency. Moreover, studying the data can help back the decision and formulate a more reliable projection. One such example of Managerial accounting is cost accounting, in which an in-depth analysis of expenses is done to reduce costs while keeping the same quality. 

Benefits Of Accounting

1) Enables Analyzing of Records

To analyze or inspect a company’s performance, it is necessary to have accurate and appropriately calculated records. This comparable information can be a great source for determining weak points and finding room for improvements. On the other hand, helping with decision-making remains an enduring benefit.

2) Extracts Results

Results or any proof of performance are compulsory for the organization. It motivates the employee to push their limit and attracts investors. A good performance report derived using accounting improves the firm’s credibility and smooths the process of borrowing or taking a loan. At the same time, an unsatisfactory report can highlight the sector that needs more attention. 

3) Proof Of Legal Functioning

Providing legal accounting reports to Government bodies is the rule that every organisation having financial transactions should follow. Accounting is, thus, required to prepare these files and calculate the total tax to be paid. Moreover, authorities also used these reports to know the total value of the company, its net income, any malpractices performed by the organisation etc. Not submitting these legal documents, GST returns, or filing may cause trouble.  

Career In Accounting

From the above discussion, it is quite clear that the significance of accounting and an accountant in a legal firm is huge. Without these saved records, imagining a company is next to impossible. The role of accountants is of great responsibility. They have to perform all the necessary calculations and create reports accordingly. 

While MSMEs hire only one or two accountants, business giants have a whole department that requires a complete building floor. One can estimate how important it is to have a  skilful accountant. Their major roles and duties include bookkeeping, tax planning, auditing, etc. 

In India, there is a huge demand for accountants. It is believed to be a prestigious job. Accountants are counted as the highest paying professionals. With the increase of firms and startups, the demand for qualified accountants and CAs (Charted Accountants) is increasing.

But, of course, being a CA is not a cakewalk. An aspirant must spend 4  –  6 years practising and studying, and the success rate is still uncertain. But working and struggling for this position is worth it. A recognised CA can earn up to ₹ 6-7 LPA initially, excluding the Bonus, incentive and commissions. In comparison, the annual pay outside India can even go up to ₹ 75 LPA.

Conclusion

So these were some important benefits from owners’, creditors’ and lenders’ perspectives, which verifies the importance of accounting. This makes hiring an accountant a definite task; for an accountant, polishing their skills and improving expertise is the only key to achieving big. 

Apart from accounting, law advice and service are also required in an organisation. Vakilsearch is a website that helps you meet all your law-related requirements and connects you with professional and experienced lawyers. Their services are highly affordable and come with active customer support. To check out more, login into their website or mobile application to make the best investment of your life. 

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