Question

Why the accounting system is important for a company

Answer 1

Accounting plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information which can be used in making business decisions.

Financial Statement includes the following:-

• The income statement which provides with the information about the profit and loss of the business.
• The balance sheet gives you a clear picture on the financial position of your business on a particular date. The assets and the liabilities of the business on that date.
• The cash flow statement that reports the cash generated and spent during a specific period of time. Inflows and outflows of cash and cash equivalents.

Reasons why accounting is important are as follows:-

• Accounting helps you understand what’s going on with your business financially. For eg, expenses, gross margin, and possible debt.

• Since, Laws and regulations vary from state to state, proper accounting systems and processes helps to ensure statutory compliance. For eg, sales tax, VAT, income tax, and pension funds etc.

• Budgeting and future projections on financial data can be done by accounting process only.

• Accounting plays a critical role in filing financial statements with the Registrar of Companies or Stock Exchanges.