Introduction: Need for accounting
All types of business concerns require to record financial data relating to various transactions to provide necessary information to the interested groups of persons in the firm. For taking adequate decisions relating to the business firms requires an overview of their past business transactions.
For this, the recorded data of past transactions are the source of information. Thus accounting data is capable of providing necessary information for decision makers. To use costly resources of firms in appropriate ways, the people in organization need information about these resources and about the results achieved through them. The external parties of the organization need similar information in order to make judgments about the organization. Accounting records of the enterprise will provide them with such information. (Free Term papers on Nature and purpose of Accounting 2008).
Control over company’s assets
Accounting is a mandatory need to establish proper control and management of financial resources. Maintenance of proper accounting information about the resources will help to identify mismanagement of financial resources in any type of organization.
“The main purpose of financial statements are to state the current financial position of an enterprise, and its financial transactions during a particular period. Profit measurement is the main aim of accounting. Without proper accounting, it is not able to assess the profitability of any entity.” (Introduction to Accounting).
Storehouse of information
For assuring the growth and profitability of enterprise, it is necessary to record the present position of the business. Without knowing the base from which the business is start, its growth cannot be measured. For this accounting, past information relating to business is necessary.
“For surviving in the competitive business world, profitability is essential for any business. For this Control of finance is essential. The collection and recording of information relating to financial transactions business can assess its performance. Accounting personnel can inform the managers about financial problems. (Business Studies Finance).
Accounting in various businesses
Companies are accountable to shareholders, customers, and employees for creating wealth and profits. For informing, the stakeholders about the growth and profitability of the firm it is required to present the financial position of the firm in Government approved accounting formats.
Charitable and non-profit organizations carry on their workings with altruistic aims. The government and other charitable persons supply the fund for their working. In order to inform the donors of fund about the proper use of the funds it is required to record all their activities accurately.
Local authorities are accountable to the government and general public. Account keeping will help them to clarify their activities and to ensure that they supply necessary services in time and in conformity with budgets.
Accounting records shows the assets entrusted to business entities. Thus, the auditors can assess malpractices of the use of the assets of the business during audit of firms.
Managers can use the accounting data for future decisions. They can assess the growth and profitability of the business from accounting data.
The financial statements prepared by the firm keep stakeholders better informed. Moreover, creditors can assess the profitability and safety of their investment in the business by the financial statements. (Introduction to Accounting).
“Accounting is an information system to help make decisions. It is also an instrument of control–which can be defined as a correspondence between what agents choose to do and what other agents expect them to do under various circumstances. In both decision making and control, the past serves as an instrument for seeking a better future.” (Dumsky et al 2002).
Internal checks and audit
For ensure the proper maintenance of cash and other assets of business and its proper usage for official purposes only, proper control over resources claim top precedence.
Control will be enhanced if the duties of the members of the organization are divided so that no one person handles all aspects of a transaction from beginning to end. The activities of the business are shared by several persons. For the coordination and control of these activities, proper accounting record is essential. (Financial Management Guide for Non-profit Organizations 1997).
Cost control is necessary for estimating profitability of any business. For effective cost control, Estimation of the cost requirement of all activities is essential. By comparing the actual cost with estimated cost, it is easy to analyze the variant activities, which need to be controlled. Thus, recorded accounting data will helps the cost control of the enterprise.
Conclusion
From the above reasons, it may be concluded that accounting is essential in any kind of business where profits and growth trends are needed. Accounting data serves as the watchdogs for management so that the business is run smoothly and in sync with the aims and objectives of the business. Moreover, for profit planning, expansion and diversification programs, why, even for obtaining financial support from banks and financial institutions, it is necessary to provide financial data for assessment of financial viability.
A Company having a robust financial position could become even stronger by making good use of their assets and getting benefits from their continued use. Even for control purposes, it is necessary that costs be controlled and revenues generated to serve the common good of the employees, shareholders and the public at large. Strong and pro-active accounting systems ensures maximum control mechanisms over business performance both within and outside the company.
Bibliography
Business Studies Finance: The Accounting Finance. BBC Home. Web.
DUMSKY, Joel S et al (2002). Some Thoughts on the Intellectual Foundations of Accounting. Vol. 16. Questia. Web.
Financial Management Guide for Non-profit Organizations. (1997). National Endowment for the Arts office of Inspector General. Web.
Free Term papers on Nature and purpose of Accounting. (2008). Oppepers.com. Web.
Introduction to Accounting. Tutor2u. Web.