definition backgroundWhat is the importance of accounting in business?

What is the importance of accounting in business?

By Nguyen OanhPublished: 06/01/2022

Accounting is important to businesses for a variety of reasons. The sustainability and development of a business are conditioned by the generation of profits. However, only the accounts can provide the necessary indicators to know if the turnover achieved covers all expenses.

While the basic principle seems simple, but finding a profitable source is very difficult. You have to adopt good management to be successful, and this also requires a good accounting management system within the company.

So what is the role of accounting in this success? In this article, you will learn about what accounting is, the importance of accounting, its purpose and its benefit in business, also the different types of accounting.

Let’s get right into it now!

What is accounting?

Accounting is a fairly general concept. It designates the entire process of receiving accounting items, their classification, their recording, the calculation of the various balances and accounting results, up to the establishment of standard accounting documents.

It is a practical discipline that forms the basis of all management tools. Accounting is a tool that makes it possible to identify, analyze and communicate information relating to the business of an organization as well as to its assets.

Accounting data is expressed in the form of figures, sometimes in quantities but more often in the form of monetary value. All records must be precisely dated.

What is the importance of accounting?

Better management of the business

Accounting information provides reliable figures and indicators on the financial situation of the business, which forms an authentic basis for decision-making.

​​​​Bookkeeping is not just about knowing what is on debit and credit, assets and liabilities, but it is necessary for strategizing and making critical decisions for the business.

As for the evolution of turnover, it allows us to get an idea of ​​the changes that have marked the sector. Through accounting, decision-makers can get an accurate picture of the company's finances and spot problem areas, which may hinder the development and expansion of the structure.

Real-time decision-making

Decision-makers often prefer to have visibility into the impact of purchases or recruitments made. Real-time bookkeeping makes it easier to budget and track cash flow to bypass potential difficulties on time. This is one of the crucial advantages of having up-to-date accounting data.

To have regularly updated accounts, it is important to call on a modern fiduciary with an online platform, available anytime and anywhere, in order to access accounting information when needed.

Good planning for the future

Keeping the accounts on a regular basis and keeping them up to date allows better planning for the future. For example, accounting provides indicators on the seasonality of the business, which helps to better manage inventories and the budget allocated to investments in order to ensure the competitiveness and viability of the business in the market.

Well-kept bookkeeping allows you to know your resources and cost centers, as well as the best way to manage them.

A good start of your business

In the majority of cases, failures observed during the creation of companies, mismanagement of finances is the main factor of this failure. This is especially the case for entrepreneurs who take charge of their own accounts and who unfortunately do not have all the knowledge and skills required to maintain and manage them.

Hence, they need to call on a fiduciary who has the skills, but also the tools and experience required. Such a choice allows the manager to devote more time to the other managerial aspects of his business and to take more care of the development and growth of his business.

By soliciting a fiduciary, the latter becomes a reliable partner, on whom we can count to preserve the financial health of the structure. Good bookkeeping makes it possible to guarantee the efficiency of the management of the business by having reliable and accurate data.

What is the purpose of accounting?

The general accounts of a business make it possible to record the value of the operations carried out by a business and also to identify the details of what it owns and what it owes.

It makes it possible to list chronologically the movements of money inflows/outflows that the company records, that is to say, to list the sales made and all the resources, the expenses paid, and all the charges; what makes it possible to deduce the operating account and then the net profit for the year (positive or negative) is the profit and loss account.

Another document, drawn up annually, gives a statement of the business's financial balance, detailing what it owns and what it owes, which is the balance sheet. Finally, there is a set of supporting documents that provide details on these recorded transactions.

What is the benefit of accounting for your business?

Benefit for business owners

The accounting report informs the head of the business and the shareholders about the financial situation (all assets and debts) of the business.

It also allows him to know the result (profit or loss) generated during a given period by his business. It is therefore a decision-making solution that makes it possible to determine which activities generate profit and which generate a loss.

Benefit for business partners

Company employees seek to justify an increase in their income. The accounts will let them know the terms of the income distribution, more precisely, the added value generated by the activity of the business.

Reading and analyzing accounting documents will help company stakeholders and investors estimate the chances of improving or deteriorating results in the future using certain methods and to know the future value of the securities.

Benefit for the company's creditors

The company's main creditors (suppliers, bankers) will be able to ensure the quality of their debt. Accounting authorizes you to take stock of the exact situation of the business and its repayment capacity. Bankers will thus be able to determine the acceptable level of credit based on this repayment capacity.

​​It is for the managers of the business a solution and a source of information essential to good management. All important management decisions (investment decision, financing, profit distribution) are primarily based on the analysis of accounting information.

Types of accounting

There are two main categories of accounting for companies:

  • General accounting (intended mainly for external actors)
  • Cost accounting (mainly intended for internal analysis)

General accounting

General accounting is based on the double-entry technique, it aims to chronologically record all the operations carried out by the business. It is an information source for business partners such as customers, suppliers, bankers, insurance companies, tax authorities, etc.

Cost accounting is essentially maintained by medium and large companies, which use it as a strategic management solution. Thus, it is intended more for project managers and executives than for accountants.

Cost accounting

Cost accounting or management accounting is non-compulsory accounting, intended primarily for business leaders to enable them to make the right decisions. It is an accounting based on the analysis of charges and costs, it aims at the analysis and determination of the costs and the analytical results of the products and services that the company sells.

Key takeaway

Accounting is a scary word. Still, it's not that bad. In practice, this requires regularity and a little rigor. Necessary to meet the company's legal obligations, it also authorizes its performance to be assessed: a decisive tool from all points of view.

And if you now want to know more about the accounting terms related to your business, consult our dedicated article.

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