Accounting : Meaning and Importance
Irrespective of the size and nature of an organisation, accounting is always a necessity for running a business effectively. Accounting being the “language of business” communicates to owners, managers, regulators, creditors and other stake holders about its financial performance and financial position.
Every business, be it a small or large, has one goal in mind, that is to make a profit. Accounting enables business owners to keep a track of the financial information of the business. It enables business owners to record, report and analyse the information. Accounting deals with almost every aspect of the business. It provides the business information on the income of the business, the cost of goods sold, the expenses, assets and liabilities etc. All businesses rely greatly on the information gleaned from accounting to understand how money was spent within the business. With a simple glance at financial statements, which are the result of accounting, the business can get the results of its operation and decide its future strategies. The importance of accounting in business can be summed up into its following functions:
- Proper records and information
- Communicate the performance of business
- Base for management decision making
- Working capital management
- Better control over expenses
- Statutory compliances
- Budgeting and future projections
- Quantitative and qualitative reports
- Enables comparison with the competitors and industry standards
More than collecting the figures accounting has a very wide purpose in modern business scenario. The accounting job includes collecting, analysing, interpreting and communicating the data. And it requires qualified and experienced personnel.
Accounting has made a significant impact on the business world, and it has grown exponentially in the past years. This growth can be attributed to a great number of new businesses, increasing government regulations, and complex financial situations. Whatever the reasons for the growth of accounting and its role in business world, it can be safely surmised that accounting has made a tremendous impact on the business world.
It is a fact that in the absence of a statutory requirement to submit financial returns in the UAE, many of the business concerns were not serious about maintaining accounts systematically. Other than for submitting to the banks, where there is a credit facility, preparing books of accounts and financial statements was not considered important. But the upcoming changes in the economy like introduction of VAT system makes it mandatory to the business organisations to keep the accounts and other related reports.