Is Business Accounting is important for Enterprises?
To run your business you need data, records, and analysis, accurate information of assets, liabilities and profit etc and that is why accounting is very important to know the status. “Accounting covers broad range of activities like recording, classifying, summarizing and analyzing in a fundamental manner, transactions and events which are of financial character and interpreting the result thereof.” Business accounting includes financial and management accounting.
Role of Business Accounting Services
Bookkeeping is an assistance activity. It has vital role as it provides quantitative data of financial nature to various stakeholders which are intended to be used in making an economic decision. These stakeholders include management, government, investors, suppliers, financiers, regulators, creditors, debtors etc. There are three major statements which show the Business accounting system are as follows:
1. Profit and Loss Account (Income Statement)
Income Statement of business which shows the net income generated/net loss incurred by an enterprise during a particular financial year.
2. Balance Sheet /Statement of financial position
Balance sheet shows the financial position of an enterprise as on particular date. Closing balance of various liabilities and assets are reported in balance sheet.
3. Cash Flow Statement (CFS)
Cash Flow Statement provides aggregate data regarding all cash inflows and outflows an entity receives from its ongoing operations and external investment sources. Basically it shows the complete cash inflows and outflows among operating, investing and financial activities of an entity.
Therefore, these three statements when combined together makes Financial Statements. And these are required by all the stakeholders.
In today’s dynamic and complex business environment it is very crucial to keep our accounting records accurate and up to date. Proper accounting is important for every entity because of the following reason-
- Helps in assessing the performance of business
As discussed above, the accounting records show the results of operations as well as the statement of financial position. Also, various balance sheet and profit & loss accounts ratios can be calculated which help user of financial statements to analyze the performance of an entity. For example Current ratio, Turnover ratio, EPS, Net worth etc. It also helps in comparing accounting data of previous period with the current period as well as budgeted figures for variance analysis.
- Helps to manage and evaluate cash flow
Cash requirement for working capital and an enterprise can be duly taken care by proper accounting system.
- Helps business to meet statutory compliance
Appropriate business accounting ensures timely recording our liabilities which needs to be paid within the prescribed time limit. This includes provident fund, pension fund, GST, Income tax, TDS. It helps organisation to meet the statutory compliant on time.
- Helps to make budgets and future projections
It helps an enterprise to prepare budget and prepare for future period. Business projections based on past data produced by accounting system.
- Helps in filing financial statements with regulators, stock exchanges and filing of Income Tax returns
Enterprises are required to file the financial statements with ROC and Income Tax. For the listed entities the same is required to be filed with stock exchanges as well. For both indirect and direct tax filing purposes, financial statements and other financial data is required.
The accounting data provides a number of qualitative and quantitative customized reports that required in day to day business activities.
For the above we can conclude that accounting has vital role for any enterprises whether listed or unlisted, profit-oriented or not for profit, Government or private.
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