In this article, we are going to talk about the concept and importance of accounting. In early ages, when commercial activities were based on Barter system, there was virtually no need for record-keeping. The industrial revolution that happened in the nineteenth century along with the rapid rise in population has paved the way for the development of commercial activities. The mass production and distribution determined recording business transactions to become an important feature in the nineteenth century. The recent advancements in technology and marketing with stiff competition, accounting systems have undergone remarkable changes. So, accounting is an important aspect of any business.
The need and importance of accounting
When a person starts a business – either it is a large or a small business – their aim is to make a profit. Business owners receive money from various sources such as sales, bank loans or interest income. The money being received is spent for various purposes such as purchasing assets, goods, or wage payments. These activities take place during the normal course of business. At the end of the year, business owners shall quantify the progress of their businesses. Due to the high number of transactions, recalling each and every may prove a strenuous task that’s actually almost impossible to bring to an end.
It’s now when the accounting comes into play. In order to record business progress throughout the year, business owners must record each and every transaction (incomes and expenditures). Hence, the details of the transactions have to be recorded in a clear and systematic manner to get answers easily and accurately to different types of questions such as “What happened to the investment?”, “What are the results of business transactions?”, “Which are the assets and the nature of the assets?”, “What is the nature of liabilities?”. Answering such questions is important to know whether the business goes on profit or is suffering losses.
How an accountant would benefit you and your business
“Why you need an accountant” is a question a wide majority of business owners have asked at least once. Many people consider that their business is not in the position of needing an accountant because they do their own returns for instance.
Any accountant worth their salt isn’t just someone who knows a lot about taxes or who is good at math. What makes a good account is a wealth of business experience, who can provide solid and qualified advice on the right direction a business should take in order to improve and succeed. In other words, someone who invests their time, effort and expertise in spotting the opportunities as they rise and guides you through difficult and uncertain financial times can be actually called a good accountant.
In conclusion, the need for recording business transactions in a clear and systematic way represents the basis of bookkeeping. Thus, a good accountant is a prerequisite for any business owner who wants to succeed.