Why Does Accounting Matter so Much in a Business?

why does accounting matter

In 1494 an Italian called Luca Pacioli first introduced the system of double-entry bookkeeping. Through this, the foundation of modern accounting was laid. However, the history of accounting goes back thousands of years. So, what is accounting? The short answer is it is the procedure of recording the financial activities. It can be on an individual level as well as organizational and even on the governmental level. Accounting is the process through which an accountant summarizes, performs an analysis, and then reports the financial transactions of an individual or an organization to concerned authorities that oversee these transactions. The process of accounting is essential, and every type of business uses it.

Moreover, accountancy is considered the language of business. Therefore, the role of accountants both in businesses as well as in societies cannot be overlooked. They help in preparing and overseeing the financial records. Accountants are experts in the field of taxes and can suggest a better way to plan your finances. Businesses are always in need of skilled accountants. It has made accountancy a popular career choice among many students.

Additionally, the students can select their specialization from a wide range of options. Financial management, auditing, tax accounting are a few of the popular choices. Some universities do not require a GMAT and offer an online degree in accounting. Therefore, individuals can opt for masters in accounting online no GMAT required. Online education allows working professionals to continue their studies with their current job. Moreover, accountants have plenty of job opportunities in the private as well as government sectors. Here is a list of five reasons why accounting matters so much in a business.

#1. Helps in Attracting Investors

Accounting makes it easier to track all records and evaluate business operations. The financial records help in determining the performance of the business by maintaining transparency. Financial records give the accountants an idea of the cash inflows and expenses. Investors, tax collectors, employees, and even lenders need this information every step of the way. On the other hand, if this sort of financial information is not maintained and updated continuously, it can create many problems for the organization. This indiscipline, if continued, will lead to the demise of the company. Investors will hesitate while investing their money with messed up or missing financial records because they will not be sure if the business can profit them.

#2. Makes Evaluation of the Business Fairly Easy

Not only is the performance of the business good for attracting investors, but it also helps the owners in many other ways. The most important function of accounting is to compare and contrast income and expenses. With these two factors, you can

  • Evaluate if your business is generating profit or loss.
  • Assess the data for a particular day, making it easier to develop a new strategy.
  • Evaluate cash generated and cash spent during a specific interval for inspecting the overall performance of the business.

You can use this information to compare and analyzing different strategies. You can see what worked and what does not work. Also, you can make essential changes to your business model based on this information.

#3. Helps in Budgeting

When you know the cash inflows and outflows, it will become easier to design a budget. Financial data is essential for making or breaking a business. If you need to make your business profitable, you may base your decisions on previously collected financial data. When you maintain a proper accounting system, you have a record that shows the expenditures over the years. Therefore, the accountant will make a realistic budget. Moreover, past experiences will be supporting this budget, making it easier for the company to stick with it. By using financial records to help in budgeting for the succeeding fiscal year, the accountants can help project the company’s future.

#4. Improves the Decision-Making Process

Running a business is not an easy task, especially for the people who have to make the decisions for the company. To grow a business requires constant decision-making. Steps like recruitment of the new staff, budgeting, setting future goals for the company to entail thorough decision making. The best way to make a reliable decision is to base your decision on facts. When a company’s accounting system is robust, the decision-makers will have to base their decisions on that sound data. This data was attained through the rigorous process of accounting. Therefore, it minimizes the risk of failures. So, we can say that good accounting helps in the process of decision-making.

#5. Saves Time

Organizing things saves time. The same can be said for financial data. If a company has all of its financial records well organized. It can save up a lot of time. On the other hand, a company that lacks a proper accounting system will be wasting its time and resources. The company can save time in decision-making, preparing for taxes, budgeting, and other similar business activities. The company can utilize this time in more important things like expanding the business, reaching new milestones, building an online presence, are to name a few. So, there are multiple ways in which a company can benefit from hiring an expert accountant.

Conclusion

Accounting is the process by which accountants maintain financial records for a company or an individual. There are many reasons why accounting matters so much in a business. Accounting helps in recording as well as analyzing financial activities. When a company can project its financial history, it increases its chances of attracting new investors. Moreover, it can evaluate its performance and create a realistic budget accordingly. A proper system of accounting saves a company from the burden of auditing. In this way, a company saves its time and resources with good accounting. The importance of accounting is the reason why companies value skilled accountants.

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