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. 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 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 welcome your comments or suggestions to my webpage. Please feel free to fill out the form below if you have any comments, or would like some assistance with your accounting.

Categorised as Accounting

By Robert J Rutledge

I am a Canadian Chartered Accountant practicing from Winnipeg, Manitoba, providing a wide range of accounting, taxation, and financial services to individuals, small businesses and associations.