1.Recording Financial Transactions
The main role of accounting is to maintain a proper and complete record of the business’s financial transactions systematically. These financial records are very important in making a business decision of business. It helps business firms to monitor the transactions if required at any time.
2.Budgeting and Planning
All business organizations want to plan how they distribute their available resources such as labour, machinery, cash to attain the goals and objectives of the business. Hence, they can allocate their limited resources in accordance with the needs of different departments
3.Decision Making
Accounting helps business organizations in the decision-making process and guides them in developing policies and procedures to increase the efficiency and effectiveness of business operations. There are some cases in which decisions are taking based on accounting information like the resources required to make the products and services, prices to be charged for these products and services, analysing business opportunities.
4.Business Performance
Business owners are using accounting reports to monitor how well a business is running. The financial reports are important documents that help to measure the financial performance of a business. Hence, the business firms can compare these reports themselves against the competitors and past performance of the business.
5.Financial Position
The financial statements are the main indicators of the financial position and performance of a business. It explains the capital invested, resources that have been used, assets and liabilities, profits, and losses of a business firm.
Financial statements are the records that provide information regarding the business operations and financial performance of a company. All business organizations are preparing financial statements to know about the financial operations of a business. Hence it helps to understand the financial position and whether the business firm is profitable or not. Income Statements, Balance Sheets, Cash Flow Statements, Statements of Shareholder’s equity are the main financial statements.
6.Financing
Accounting information can be used to prepare financial reports and financial projects which can be useful for applying for a loan or raising funds for the business.
7.Liquidity
It is very important to use cash properly for the successful operations of a business. Accounting information helps in deciding the liquidity of a business to make payments on loans if any, to meet current cash requirements, and unexpected expenses.
8.Control
Accounting helps in minimizing losses caused by damage, fraud, mismanagement and involves the processes that reduce the cost of operation, and check mistakes and take corrective action, and maintains your projects and other business activities on the right track.
9.Legal Requirements
Every business needs to keep accurate financial records of their business transactions and submit the reports to the stakeholders, tax authorities, and regulators. These financial records can be used for tax filing purposes.
10.Ascertainment of operational results
All business firms need to know their operating result at the end particular financial period of time. The preparation of the income statement helps to calculate the amount of profit or loss for a particular period of time.
11.Ascertainment of financial affairs of the business
Every business is assessing the assets and liabilities that can be done by preparing a balance sheet so that the financial affairs of the business at a particular period of time can be ascertained.
12.Maintaining accounts of cash
A cash book is a financial record that contains all the cash receipts and cash payments, cash in hand, cash at the bank.
13.Control over assets and liabilities
Business owners need to acquire various assets for the successful operation of a firm. They need to acquire assets like land, building, and machinery, etc and to meet liabilities like loans, accounts payable, bank overdraft, wages owed, taxes owed. Hence, it's required to maintain proper accounts to know the actual position of the assets and liabilities. So, it’s very important for all the business to control the number of assets to decrease and minimize liabilities.
14.Determination and assessment of policies
The proper maintenance of accounts is to help the business in formulating and assessing policies and procedures in running the business efficiently and successfully by providing the necessary information and analysing and interpreting financial records.
15.Testing arithmetical accuracy of accounts
One of the main important purposes of accounting is to assure that business transactions have been recorded and maintained in a proper way. Preparation of trial balance helps to confirm the arithmetic accuracy of accounts maintained in the ledger
The main purpose of accounting is maintaining an accurate and systematic record of all business transactions and assessing the financial position and performance of a business. Hence all business organizations need to record all the business transactions and analysing the performance of business operations that can be done through the proper accounting process. A business organization can find out the operating result and financial position of the firm through accounting at any time.
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