Question

make a conclusion why accounting is important

Answer 1

Accounting is a systematic recording of financial transactions in the form of Journal Entries, Ledger Accounts, Trail Balance and presenting the financial information in the form Profit & Loss Statement & Other Comprehensive Income, Balance Sheet and Cash Flow Statement.

• Financial information provides information about the net income/loss generated during the accounting period, cash flows generated from the operating activities, financing activities and investing activities during the accounting period.
• Helps to understand the financial position of an organisation at the end of each accounting period by calculating the  key operational ratios like liquidity ratios, activity ratios and financial ratios like debt to equity ratio, times interest earned ratio, debt to total assets ratio etc.
• Financial information is helpful in preparing budgets and projected financial statement for future growth and plans and in variance analysis to improve the efficiency and effectiveness of the operations.
• Providing information to the stakeholders, to attract prospective investors, banks and financial institutions.

By concluding,

Accounting by organizing the financial transaction helps the organisation to understand the overall financial performance and position for each accounting period, monitor and plan for future economic growth. Analyzing and understanding of key ratios helps in decision making in operations, investments, new product launch etc. Audited financial statements in complaince with laws and regulations helps boost the confidence of the stakeholders, investors, borrowing funds for future expansions and growth.