The advantages of accounting are discussed here in this article. Accounting is termed as recording financial statements together in a synchronized manner pertaining to business and other corporate purposes. The accounting includes summarizing, analyzing, storing, sorting, retrieving, presenting and reporting these transactions to oversight agencies, regulators and tax collection entities through various reports and analyses. It can be presented through financial statements like balance sheets, excel sheets, income, statement etc. It summarizes the company’s operations, financial positions and cash flows of a company to one another company.
Accounting is the key element of any business and can be done by any book keeper or an accountant. Depending upon the size of the company, accounting sector depends upon. The bigger the company, the more number of people can be employed in the company. It is a necessary function for any company’s decision making, cost planning, and measurement of economic performance measurement.
Types of Accounting
There can be types of accounting:
- Managerial Accounting: It provides information to management for analysis, decision making, planning and control of the business.
- Financial Accounting: It is the process of recording and summarizing financial transaction.
- Cost Accounting: This helps making cost related decisions according to the present balance sheets and the records of the company. The analyst determine what the cost of the product will be best suited for the progress of the company.
10 Advantages of Accounting
There can be many advantages of Accounting in a Company:
1. Complete and Systematic Record
Accounting is based on generally accepted principles and recording the financial data together in a synchronized and a systematic record which prevents the loss of any data which obviously cannot be recalled in mind by a normal human being. Thus, maintaining data through accounting enables a complete record of a company and all the transactions are recorded perfectly which a human being cannot do it in mind with accuracy.
2. Greater Accuracy
One of the obvious reasons of accounting is better and improved accuracy of all the transactions that a company or a business has and needs to be recorded because there are a multiple number of occasions where a human mind can make errors while calculating the numbers of a transaction or some other data. While I totally accept that even a high end accountant can make some mistakes, but when all the data entries are typed in correctly in the computer, then there are 0 chances of any mistake or error in analysis or calculation. There can be some accounting software as well which furthermore reduces the error to a more level and then it even benefits the back end office operations with better time management in the company.
3. Cost Effective Services
A major advantage of outsourced accounting operations and services is that it reduces the cost of a company and is quite cost effective. This gives company a chance to spend that money somewhere else to a better purpose or some other operation. Accounting saves a lot of precious time and makes the whole system a lot more organized. A proper paid accounting software if bought can be a lot of money at one time but then there will be no need for some accountant or a book keeper for accounting and summarizing all the transactions and thus it proves to be a real money saver and then that money can be put to much important and urgent use of the company.
4. Easier Tax Filings
Tax compliance is one of the most dreaded and toughest procedures that any accountant or accounting firm needs to go through. It can be cumbersome and tedious as it involves a lot many procedures, processes and laws that needs to be completed to completely go through it. It involves a heck load of numerous calculations and even keeping a track of all the invoices till date is a difficult task. Outsourcing process and operations or a software if bought can help you avoid and prevent penalties during a tax filing processing. On the other hand, a software can file up all your invoices and receipts in an organized manner and then there is no fear of its loss and the tax filing operation can be carried out with much smoothness.
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5. Valuation of Business
In cases of sale of business or probably conversion of one business into another, we need to evaluate the net worth of the business and to find the actual price that can be set for its sale with proper check of its assets and liabilities as well. Now, this can be properly done only and if organized balance sheets are made of the company with proper accounting sources and tool, that it better accounting comes in hand at this place which keeps a tab of all the assets and the liabilities if company holds any to calculate the actual net worth, calculating all the funds that is being presented in the sheet and the finance cards.
6. Helps in Raising Loans
Any business or company will always require funds and money to function properly with its full power. Even though, I say a company might have adequate amount of funds needed for its proper functioning, even then they might need some more funds which they would need to borrow from the banks or money lending firms like HDFC, ICICI, SBI and many more. Now, a bank will lend you that large amount only after taking into notice the net worth of your assets and will check into your liabilities and if the company sounds good and whether you will be able to pay back the money or not and this kind of proper evaluation can only be done from the maintained account books or balance sheets or any other account data which requires accounting and summarizing all the transactions ever happened.
Thus, accounting again comes in handy by helping the companies and businesses out of jam due to its organized record setting principle with all the data and entries and all the profits and the losses if any. The exact profitability of any business or company thus can be calculated from their balance sheets and the recorded numbers.
7. Evidence and in Compliance of Law
As normal and basic, accounting might sound to you, it is in fact a very important and useful tool that every company and business needs for them to function properly without any kinds of penalties and problems. Accounting thus again helps as they can be used as evidences in the court as all the entries are stored in the books of accounting and which are authenticated as well. Thus in any legal proceedings, these business books can be used to prove as an evidence. Also any company or business needs to deal with various government departments like income tax, excise tax, sales tax and they need a proper organized report of all the data that a company holds of and accounting is beneficial here as well as proper records are being maintained in the books of accounts and the balance sheets whatsoever.
8. Effective Management
Accounting facilitates proper feedback to the management. As such accounting helps in proper management in the company which facilitates proper decision making and various other business activities that needs to be done in the company taking in notice all the costs that are incurred. It also helps in reviewing the progress of the company and to see its benefits and also to remove any shortcomings if the company has any which is usual for it to have. Accounting software on the other hand saves a lot of time as it gives the best and error free result in no time with least man force as an entry which requires the accountant few minutes to be plugged in can be done by the software in less than some seconds and can be done quite efficiently which is quite effective and saves a lot of time.
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9. Firm Comparison
Books of total profit and loss accounts has all the data being put in according to the transactions made and the money spent in a systematic order. It shows the net earned profit or losses of any company and thus these books have all the data about the sales, expenditures, expenses, gross profit, and they all can be compared within the firm or even among various firms to evaluate the net worth of the company or the business.
Comparison of accounts of two different enterprises for the same year is called inter firm comparison and this comparison can help businesses flourish as they compete for the business to increase their gross net amount of the company.
10. Facilitates and helps in auditing
Certification of the books of accounts is known as audit, which is mandatory for any company or a business depending upon the size, nature and the type of business they are into. When a company is done with auditing and it receives an audit certificate from the auditor is a clear signal of clear chit denying any kind of irregularities taking place in that organization and that there is no illegal flow of money from the organization which is very important for any company to function.