Significance of Accounting in Simple Terms

Significance of Accounting in Simple Terms

Accountancy or accounting is the scientific study, recording, analyzing and communication of financial data about non-financial organizations including corporations and businesses. The main objective of accountants is to process financial transactions for obtaining information essential for strategic management. They organize, summarize and interpret financial data for decision making. Accountants perform a variety of activities like creating a statement of account, preparing the year-end income and expenses accounts and preparing the financial report. They are also involved in auditing. They use various methods to collect data like documents, statements, reports, and leads to provide decision makers the needed information.

In order to process financial transactions correctly accountants must follow certain rules and regulations. In this respect, these rules and regulations have been formulated keeping in mind the nature of the financial transactions. First of all, the accountant should document every transaction in writing so that there is no question of accounting fraud. The documentation should also include the method used to obtain the information and the purpose of collecting it.

Another important rule for accounting is that all financial information should be recorded in the journals of the company. This is because if the company is able to preserve the records of accounting transactions correctly then it can easily recover from any loss arising due to fraudulent activities. It is very important for an accountant to make sure that the records are accurate because if they are not accurate then it will be difficult to meet the objectives of accounting. Also the financial statements and the journal of account should be updated regularly so that the company can assess the correct cash flows.

Apart from the record of accounting transactions, the accountant should also prepare reports and analysis of financial reports and these reports and their supporting documents are to be prepared in such a way that they help interpret the accounting records. For instance, if a company is selling some product, then it should keep a record of the inventory and the sale price in order to understand the profit made. On the other hand the accountants should also analyse the earnings of the company by considering the depreciation and re-issue prices.

Some of the common features of financial accounting refer to the control of material expenses, the preparation of balance sheet and the preparation of audited financial statements. When we talk about the control of material expenses then it refers to the control of expenses relating to buying raw materials, the purchase of necessary stationery and the employee salaries. On the other hand, the preparation of audited financial statements refers to the process of checking the accounting records by a third party. A third party may not necessarily be an accountant. It could be any person who has the knowledge and the ability to check the accounting records properly.

So, to sum up, the importance of accounting helps the company to understand the actual performance of the business. In this way it can easily make changes as soon as required and increase the profits. Accounting helps to record all the transactions and it is also essential to record the prices of the goods sold. The accuracy of financial statements can only be guaranteed if the accountant involved in the business holds a valid license from the proper authority.

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