Meaning and Importance Of Accounting

Accounting is a very common term, especially during tax season.

Before we get into the importance and benefits of accounting for business, let's first define what accounting is.

Accounting is the systematic and thorough recording of financial transactions for a business. There are many types of accounting: accounting for small businesses, government and forensic accounting, management accounting, accounting for corporations.

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Why is Accounting Important?

Accounting is essential for the success of a business. It helps to track income and expenses, ensure compliance with statutory requirements, and provides quantitative financial information that can be used by investors, management, government, and other stakeholders in order to make business decisions.

Your records will produce three financial statements.

• The income statement gives you information about profit and loss.
• The balance sheet provides a detailed picture of the financial position of your company at a given date.
• The cash flow statement bridges the income statement and balance sheets and reports cash generated and spent over a period of time.

If you want your business to be able to continue operating, it is vital that you have accurate financial records. These are just a few reasons it is vital for your business, no matter how big or small.

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It helps in evaluating the performance of a business

Financial records are a record of the results of operations and the financial position of your corporation or small business. They help you understand the financial status of your business. Clean and current records will not only help you keep track expenses, gross margins, and any debt but they will also help you compare the data from previous years and help you allocate your budget accordingly.

It ensures Statutory Compliance

While laws and regulations may vary between states, proper accounting systems and processes can help ensure that your business is compliant with all applicable laws.

Accounting will make sure that liabilities like sales tax, VAT and income tax are properly addressed.

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It helps to create budget and future projections

Future projections and budgeting can make or break your business. Your financial records will play an important role in this.

To keep your business profitable, projections and business trends are built on historical financial data. These financial data are most useful when they are provided through well-structured accounting processes.

It helps with filing financial statements

Companies are required to file financial statements with the Registrar of Companies. Listing entities must file their financial statements with the Registrar of Companies. They are also required for tax filing purposes. Accounting plays an important role in all of these situations, it is obvious.

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