Role of Accounting
Role of Accounting
- Accounting is often referred to as "the language of business." It is a crucial process that provides vital information to various internal and external stakeholders.
Benefits to Internal Stakeholders:
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For owners and managers, accounting provides a systematic record of all financial transactions. This helps in evaluating business performance over time.
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Accounting facilitates the process of decision making. It provides detailed financial information that aids in making various short-term and long-term business decisions.
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Accounting helps in planning and controlling business operations by setting budget forecasts, analysing variance, and providing corrective measures.
Benefits to External Stakeholders:
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Accountants generate financial statements, which are essential for investors and creditors to make decisions about investment and lending.
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Accounting provides transparency of business operations to externals like government bodies. It helps in computing accurate tax liabilities.
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Accounting aids in performing statutory compliances. It ensures the company is following legal regulations, thus enhancing public trust.
Ensuring Accountability and Trust:
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Accountability is the obligation to answer for the business's performance, tasks and decisions. Accounting practices ensure accountability of business entities to their stakeholders.
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By providing a true and fair view of the financial position of the organisation, accounting builds trust among different stakeholders.
Guide to Financial Decision Making:
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Accounting helps in evaluating the profitability and financial stability of the organisation. It provides necessary data to analyse the financial health, efficiency, and productivity of the company.
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The comparison of actual results with the budgeted figures is key in taking corrective action against variances.
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Accounting information helps in making decisions like expansion, investment, divestment, pricing, product mix and strategy formulation.
Remember that the role of accounting is not merely recording transactions but also oriented towards serving a greater purpose of decision-making, accountability and trust-building.