Accounting is a systematic process of identifying , calculating, recording, grouping, condensing, interpreting and finally communicating the financial information. Accounting is one of the most important functions for almost any business. It is a summary of the financial transactions of a business over a period of time. It may be handled by a single accountant or a group of accountants pertaining to the need of a business.
Need of accounting :
- Accounting helps in maintaining systematic records of the financial transactions and ascertain the net profit or loss for the accounting period and financial position of a business as on a particular date
- Accounting helps assist the management with the required financial information , for its effective functioning.
- Accounting facilitates comparative study by enabling to compare one year’s results with those of other years.
- Accounting records helps as an evidence in courts as it is generally accepted as a good evidence.
Advantages of accounting :
- Accounting provides with the financial information of a business , that is , profit earned or loss incurred at the end of the accounting period.
- Systematic and timely recording of transactions eliminates the need to memorise the transactions
- A systematic accounting record immensely helps in settlement of income tax and Good and Services Tax (GST) liabilities , since it is a good evidence of the correctness of transactions.
- Accounting helps in taking a large number of decisions pertaining to a business.
- In case of insolvency proceedings , systematic records assist a great deal in explaining the transactions that have taken place in past.
- If someone desires to sell his business, the accounts maintained by him will enable the ascertainment of the proper purchase price
- Loans are granted by banks and financial institutions on the basis of growth potential of the business , which is proven by performance of the business. Accounting makes available the information with respect to performance.
Concluding , we can say that , accounting is a boon from good for businesses and businessmen . It not only helps in ascertaining the financial position of a business but is also a great help in the time of financial crisis and helps making the work of accountants and businessmen easy.