Accounting plays an important role in business growth. It is important for small business owners as it helps in the evaluation of the financial condition of a business. It also helps in decision-making, planning, and controlling processes within a business by providing information regarding:
- Cost and earnings
- Profit and loss
- Liabilities and assets
Accounting focuses on recording the financial transaction in the book of accounts to identify, measure, and communicate economic information.
This article covers:
- What is the purpose of accounting?
- Why is accounting useful for small business owners?
- Why is accounting important?
What Is The Purpose Of Accounting?
Accounting is the medium through which you can communicate the financial details with the users to help them in decision-making. That is why it also refers to the “ Language of Business.”
The common objectives of accounting are:
- To Keep Record Of Transactions:
An accountant must keep a record of all the business transactions. It helps in reviewing the transaction whenever you need to review it. These financial records are really helpful in dealing with financial matters of business anytime when needed.
- To Manage Budget And Planning:
One of the most important aspects of business is to manage the resources of a business. You must know how to utilize the resources, which include:
Management of needs and resources is a tough job, but it needs proper planning and plotting. So you need to be smart enough to manage the business resources effectively.
- Decision Making:
Many of the business decisions depend on financial reports. Accounting helps in making decisions like:
- Prices of products and services
- The resources for manufacturing products
- Financing and business opportunities
- To Determine Business Performance:
Accounting generates account reports of a business, which help the owners to evaluate their performance. They can also compare their current performance with the past and plan future projects accordingly.
- To Evaluate Financial Status:
The accounting cycle generates the financial statements, which help determine the financial status of a business by the end of a year.
Mismanagement of cash is one of the important reasons for business failure. The purpose of accounting is to determine the liquidy, which refers to a company’s cash and liquid resources to fulfill its financial needs.
Accounting helps prepare financial reports, based on which a business applies for loans, plans its investments, and evaluates its profit.
Accounting keeps a check and balance on all the financial activities of a business. It prevents businesses from long-term losses due to theft, errors, damage, fraud, and mismanagement.
- To Manage Legal Requirements:
Accountants keep the financial record of businesses and share them with shareholders, tax authorities, legal consultants, and regulators. It helps in legal processes and tax filing.
Why Is Accounting Useful For Small Business Owners?
Small businesses require time to establish and grow as a top brand. The growth and success depend on many factors, but the most powerful is “Accounting.”
Keeping a completely correct record of the financial activities of a business is very useful for its growth.
Accounting is useful for small business owners due to the following reasons:
- It keeps the record of a cash flow to prevent it from running out. Efficient record-keeping strategies can help a lot in the management of finances.
- Cost Accounting helps understand the concepts of fixed and variable costs, respectively. It also helps in costing the projects accurately. It will reduce the chances of losing money on a project.
- It gives you a complete picture of a business’s financial status through its income statements, balance sheets, and cash flow statement.
- It prevents you from long-term losses due to fraud and theft by customers or suppliers.
- It prepares you for dealing with financial matters and helps you in facing business audits.
- Professional accountants can easily deal with bankers.
You should keep an eye on your business’s financial statements regularly to let your business grow efficiently. Saving some amount from your regular expenses can bring a more significant profit to you in the future.
Why Is Accounting Important?
Accounting helps collect data and information of a business to let the management interpret it easily. All the strategic decisions of a business depend on operating costs, changing revenues, and dividends.
If you are the owner of a small business, you must hire a professional accountant to manage all the financial records. They can provide you the best picture of business status to make smart financial decisions.
The reasons why you need an accountant are:
- Accountants analyze and interpret the financial data to highlight the areas that need improvement as it is compulsory for the business’s growth.
- Follow GAAP to formulate the financial statements of a business.
- They act as your financial advisors and help you to make important decisions.
- For receiving unbiased information, you can take help from third-party accountants.
- They help you to identify the tax deductions and prevent audits.
Besides hiring accountants, businesses are also using liable accounting software and help you in many ways, including:
- Viewing accounting reports
- Creating expense claims
- Sending invoices
Expand your business by making the right choices at the time of hiring a professional accountant.
If you are looking for more helpful resources and guidance, then check out our resource hub.
- WHAT IS ACCOUNT PAYABLE?
- What is Liability in Accounting?
- Cash vs. Accrual Accounting: What’s the Difference?
- What Is an Accounting Journal? Definition of Journal in Accounting
- What Is Management Accounting?
- What Is A Ledger In Accounting?
- What Is A Journal Entry In Accounting?
- What Are the Generally Accepted Accounting Principles?
- What Is Financial Accounting?
- What is Fair Value Accounting?
- What is Equity in Accounting?
- Specific Identification Accounting 101