What is Accounting?
Accounting is a process of identifying the events of financial nature, recording them in the journal, classifying in their respective accounts and summarising them in profit and loss account and balance sheet and communicating results to users of such information, viz. owner, government, creditor, investors, etc.
What are the needs for accounting?
- Recording of transactions: Accounting is needed to record all the transactions of the business and maintain proper books to show assets, liabilities, capital and profit and loss. Up-to-date records help businessmen to compare current financial information to past data.
- Profit and loss: Businesses are some to earn profits, and to know whether a business is earning profits, one must prepare a profit and loss account, which ultimately will show the results of transactions done.
- Tax Filing: One of the major reasons for accounting is the preparation of files of tax returns on income tax, sales tax, wealth tax, exercise duty, tax on dividends, value-added tax, import and export duties, and many more.
- Knowing the financial position: A businessman should always be aware of his business's financial position in the market. A statement called a balance sheet has all the information of the assets and liabilities of the company and thus helps in knowing the business's financial position.
- Necessary Information for financial Institution: When a business wants investment from financial institutions, they have to show the necessary information like sales, profitability, and financial position, which are there in accounts.
- Payroll accounting: accounting helps maintain the records of all the employees through the payroll accounting management system.
- Healthy comparison with market competitions: Accounts have all data on sales, stocks, profits, losses, and expenses. This data of own company and other competitions helps a businessman to variances of the Business Activities and thus take effective control over the business.
- Information to Investors and employees: A creation of an account is needed to ensure investors' safety of their money and also ensure employees of the business growth, which ultimately will benefit them in an increase of income.
- Other objectives: Accounting information is also needed to fix the company's budget and to do an analysis, cost control, and decision making by referring to accounts.
