discuss in detail the importance of accounting
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Answer:
1. Keeps a record of business transactions
Accounting is important, as it keeps a systematic record of the organization’s financial information. Up-to-date records help users compare current financial information to historical data. With full, consistent, and accurate records, it enables users to assess the performance of a company over a period of time.
2. Facilitates decision-making for management
Accounting is especially important for internal users of the organization. Internal users may include the people that plan, organize, and run companies. The management team needs accounting in making important decisions. Business decisions may range from deciding to pursue geographical expansion to, instead, improving operational efficiency.
3. Communicates results
Accounting helps to communicate company results to various users. Investors, lenders, and other creditors are the primary external users of accounting information. Investors may be deciding to buy shares in the company, while lenders need to analyze their risk in deciding to lend. It is important for companies to establish credibility with these external users through relevant and reliable accounting information.
4. Meets legal requirements
Proper accounting helps organizations ensure accurate reporting of financial assets and liabilities. Tax authorities, such as the U.S. Internal Revenue Service (IRS) and the Canada Revenue Agency (CRA), use standardized accounting financial statements to assess a company’s declared gross revenue and net income. The system of accounting helps to ensure that a company’s financial statements are legally and accurately reported.