Accounting refers to the practice of recording, summarizing, exploring financial information of a company to assist users to make informed economic decisions. The business environment today has a variety of dynamics and business is required to keep an up to date accounting records for use by the government, management, shareholders, investors, and other users.
5 Reasons for Keeping Accounting Records
1. Assist in Evaluating Business Performance
Through financial statements such as balance sheet and P&L, accounting records give the results of the operations of the company as well as its financial position. The accountant can be able to calculate various financial ratios such as the current ratio and debt-equity ratio and establish the performance of the company.
2. Assist in Monitor and Administer Cash Flow
The cash needs and working capital of a business can be undertaken by the appropriate accounting system of the firm. A good accounting practice in a firm ensures that there is enough cash flow for the firm to enhance its day-to-day activities.
3. Helps a Business to be Statutory Compliant
Appropriate business accounting guarantees timely recording of liabilities that need to be submitted at a given timeline. For instance, a business is required to submit VAT, Income Tax, and pension fund before the elapse of a given deadline.
4. Assist to Create Budget for Future Projections
Accounting information assists a company to prepare forecast and budget for a particular period. The business trends and future plans are projected as a result of past data that is produced by the accounting system.
5. Assist in Filling Financial Statements with Regulators, Stock Exchanges, and Filling Tax Returns
Firms need to file financial statements with ROC. For any listed firm, the financial statements are required to be filed with the stock exchanges. Also, for both direct and indirect tax filing purposes, financial statement and information are necessary.
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Accounting is an important factor for any business firm which is listed or otherwise, profit or nonprofit organization, private or government.