The Importance of Accounting

Welcome to my daily accounting and finance blog. Today is September 26, 2018.

My blogs are designed to teach basic accounting and financial concepts that everyday people can apply to their financial and business lives. Each day I will explain an accounting or financial concept in general terms. I will start with easy topics, and move on to more complex topics over time.

Today’s topic is “The Importance of Accounting.”

Why Do Businesses Need An Accounting System?

All businesses and organizations need an accounting system so that they can measure how they are doing financially, and where they are financially. By using an accounting system, businesses can determine how successful they have been and are provided with a reliable basis from which to make future decisions. This information is essential to the survival and success of any business or organization.

Most businesses are required to maintain an accounting system, and for larger businesses, such as those on the stock exchange, or otherwise responsible for regulatory filing, it is the law. Basically, all businesses need some form of accounting system just to file their tax returns.

Companies who do not keep accurate accounting records, or rely on them, are more likely to operate inefficiently. Those who maintain accounting systems and rely on them generally tend to be more successful. Being aware of your financial situation helps to make good business decisions. Without an accounting system, companies may be inadvertently losing money without knowing it, or they may be missing revenue opportunities.

Successful companies need to know their cash balances, receivables, assets, accounts payables, and debt obligations.  They need to know information such as: are sales volumes increasing or decreasing, are expenses too high, are departments or product lines running profitably?

Maintaining a reliable, accurate and timely accounting system will be one of the keys to your success. A well designed and up to date accounting system will allow you to:

  • Monitor the results of your operations on a regular basis.
  • Compare actual results to your original plans.
  • Identify areas of weakness, or areas in which you may be over-spending.
  • Be better informed as to the overall financial position of your company.
  • Be in a better position to make ongoing decisions for your business, as you will have solid information on which to make decisions.
  • Maintain better relations with your banker and other investors.
  • Fulfill your obligations to the government.

Whether you like it or not, your business needs a reliable accounting system.

 


I hope you will enjoy my blogs and find them useful. Tomorrow’s topic will be “Accounting vs Bookkeeping.”  Please drop by.

 

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