The foremost objective of maintaining a books of accounts is to get information about the financial position of the business.
Here are a few basic advantages of accounting
- Maintenance of permanent Business records
Basically business will have a huge number of transactions. It helps in recording all the financial transactions pertaining to that respective financial year.
- A systematic order
Accounting is a systematic way of presenting business transactions in books of accounts. It is a complete and systematic representation of business transactions. Accounting keeps a record and analysis of every business transaction.
- Decision making
The main function of management is decision making. Accounting helps the management to make better decisions with respect to selling price, deduction of cost, and increase in sales etc.
- Valuation of business
True and fair valuation of the business is calculated. Accounting helps in attaining the correct picture depicted in the balance sheet and this is used to determine the purchase price.
- Helps in Raising loans
Business owners take loans when they want to expand their business. Financial institutions provide loans on the basis of the profitability of the business. This can be measured by having a look at the accounts of the company.
- Evidence in court
All business transactions are recorded in the books and these can be used as evidence in the court of law.
- Complying with law
When you set up a business, you will have to deal with various government departments like the income tax, GST etc. Accounting helps in the filing of various returns with these departments.
- Preparation of Financial statements
If there is a proper recording of transactions maintained, Financial statements like Trading and Profit & loss account, Balance Sheet can be prepared easily.
- Comparison of Results
It helps in analysing the financial results of the entity by having the comparison of one year to another year.
Audit certificate is issued by the auditor on the accounts which proves that there are no irregularities in the organization.
- Effective management
Accounting gives proper feedback to the management about the financial status of the organization. This helps the management make better business decisions and also help in controlling different activities of the business. The performance of the business can also be determined with proper accounting.
- Cost control
It helps in identifying and reducing business expenses to increase profits that helps in budgeting process.
- Inter and Intra comparison
Comparison of accounts made between two different firms for the same period is called inter comparison of accounts. The comparison made between two different periods for the same firm is called intra comparison. The performance of the business is compared and goals and shortcomings can be predetermined.
- Prevention of Frauds, errors and forgery
It helps in taking the timely steps for prevention and detection of fraud.
Accounting helps in the overall growth of the business and helps in keeping track of the financial transactions of the business. Accounting is the best way to systematically analyse the growth, goals and shortcomings of business.
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