Advantages of Accounting

Accounting is recognized as the language of business, and thus it provides many advantages to management. Accounting involves recording transactions and compiling them in reports. Correct accounting is important for the success of a business. There are many advantages of accounting let’s discuss them.

Accounting provides the management and other stakeholders following information:

  • The type and amount of income and expenses.
  • The type and amount of possible losses and actual losses.
  • The size and amount of capital employed.
  • The rise or reduction in the level of capital employed.
  • The type and value of assets held.
  • The type and value of outstanding liabilities.
  • The specific amounts due to be paid to the government and their nature.
  • The reports about the interpretations of the financial results.

Main Advantages of Accounting

Following are the main advantages of accounting:

  • Help to management: The accounting information assists the management to plan its future actions by preparing budgets in respect of sales, manufacturing, expenses, cash, etc. Accounting helps with co-ordination of different activities in various departments by offering financial information on each department. The managerial control is accomplished by examining in money terms the deviations from the planned activities and by taking remedial measures to improve the problem in future.
  • Records instead of memory: It’s actually not feasible in any way to do a business simply by remembering the business transactions which have grown in size and complexity. Transactions, thus, should be recorded early in the books of accounts to ensure that required information on them is available in time and free from bias.
  • Intra – period comparisons: Accounting information if documented correctly enables you to evaluate the results of one year with those of previous year(s).
  • Aid in legal matters: Systematically documented accounting information can be provided as evidence in a court of law.
  • Help in taxation matters: Income tax and sales tax authorities could very well be convinced with regards to the taxable income or actual turnover (sales), as the case may be, with the help of written records.
  • Sale of a business: In the event, a sole trader or partnership firm or possibly a company desires to sell its business, the accounting information could be utilised to find out proper value of the business.
  • Reliable: Another advantage of accounting is that it provides reliable information. For instance, when you see 60,000 in accounts payable, you owe that much to others. In case you have doubts about that, reports can show you how that amount was computed. To make it to an accounting system, data must make sense and have proper records to support it. In a well-run accounting division, reconciliations are made and processes are set up in order to guarantee dependability and accuracy of information.
  • Investor Relations: A public company has an obligation to report the business’s financial position to stakeholders. The accounting division of the company produces a public report for shareholders with the purpose of revealing all financial data. Good accounting practices helps built shareholders confidence in the management team because they know precisely the points of financial strength and weakness of their investment.

 

Advantages of Accounting