Importance of Accounting
a basic necessity for all enterprises.
Importance of accounting is enumerated as below:
transactions of an enterprise which are financial in nature are recorded in a
systematic way in the books of accounts. The records are classified under
common heads and summaries are prepared.
business operations and the financial position of the concern can be
ascertained from accounting periodically through the preparation of financial
statements namely, income statement or trading and profit and loss account and
balance sheet. This helps in distribution of profits to the owners and to
provide funds for future growth of the business.
Analysis and interpretation of financial data can be done to assess the progress made in different areas and to identify the areas of weaknesses. Management is provided with a complete picture of the liquidity, profitability and solvency of the business.
a firm has to make routine and strategic decisions while discharging its
functions. Accounting provides the relevant data to make appropriate decisions.
Future policies and programmes can be planned by the management based on the
accounting data provided.
requirements like maintenance of Provident Fund (PF) for employees, Employees
State Insurance (ESI) contributions, Tax Deducted at Source (TDS), filing of
tax returns are properly fulfilled with the help of accounting. Preparation of
accounts and financial statements as per the legal requirements is also
supplies appropriate information to different interested groups like owners,
management,creditors, employees, financial institutions, tax authorities and
records are generally accepted as evidence in courts of law and other legal
authorities in the settlement of disputes.
records are the basic source for computation and settlement of income tax and
When two or
more business units decide to merger, accounting records provide information
for deciding the terms of merger and any compensation payable as a consequence