Every accountant maintains their organization’s records to run everything smoothly, so knowing the importance of accounting is necessary for all small and large businesses.
However, many people believe that accounting is merely a number game played to win. We have opposing viewpoints. It’s a strategy and decision-making game based on numbers and the core trends they reveal.
The devil is in the numbers!
Accounting requires creative judgement, skills and speed. You can’t afford any delay in knowing the numbers that are crucial for your business.
Importance of accounting in business is crucial to keep your business hale and hearty to fight both predictable or unpredictable troubles.
It’s your books of accounting that show a clear picture of your company’s financial viability. If not for accurate financial records, keeping a track of cash flow projections and statements is next to impossible.
Therefore, if you as a business person want to bring your A-game, you have to make sure your business has a full proof accounting system which is in the right hands.
It helps businesses, regardless of their location, ensure regulatory compliance, make better decisions, prevent fraud, and drive business growth.
What is Accounting?
Accounting is a critical business function that entails leveraging assets, managing budgets, preparing and analysing financial reports, taxes, and other reports, among other things.
This responsibility is critical, which explains why accounting is important in business.
Types of Accounting
Some accounting overlaps, but they differ slightly. However, in this section, you will get to know what is the role of accounting in business!
There are various types of accounting, which are as follows:
Financial Accounting
Financial accounting is the process of recording, summarising, and reporting monetary transactions resulting from business operations for a specific period. Every business should understand the importance of financial accounting.
Accounts, such as the revenue statement, balance sheet, and cash flow report, are prepared using such transactions. These assist investors in determining whether or not to invest by providing information about the firm’s economic strength.
Cost Accounting
Cost accounting keeps the record of total production cost of a business to determine its production costs by considering how much it spends to purchase the supplies and labor needed to create its products.
Managerial Accounting
The name is pretty clear to understand what managerial accounting does, they basically take care of financial information to make strategic plans and decisions for future business needs.
“Accounting is as important in healthcare as it is in business.”
Below are the top 11 reasons why accounting is essential in your business:
1. No industry today can do without a full-fledged accounting system
All businesses, profit and non-profit, must manage money, financial records and taxes, and the accounting system is what the doctor ordered.
Being a business person, you must keep the income and expenditures on your radar and the quantitative financial information of your business, which is meaningful to the investors, management, and government for informed decision-making, at your fingertips.
Plus, you also have to consider statutory compliance without fail. All these objectives can be accomplished by simply having an accounting system that checks all the boxes.
Industries these days prefer accounting software such as Microsoft Dynamics GP and Zoho because it simplifies tedious and complex accounting calculations while ensuring 100% accuracy.
In addition, it enhances the efficiency as it can manage account receivables, accounts payables, and general ledger, among others. From basic invoicing and billing to tax calculations and project management, accounting software is a wonderful tool to write your business’ financial tales.
Whether you run a digital marketing firm, a beauty salon, a real estate business, a daycare, an e-commerce company, or a supermarket, having a robust accounting system is a must regardless of the industry or type of your business.
2. Accounting underpins international sustainability
Accounting is used to measure the non-financial impact of economic activity and guide individuals, businesses, and governments toward making better decisions.
In addition, a professional accountant can advise you on governance structures, social and environmental impact, assess risk and ensure that all stakeholder concerns are addressed.
3. Accounting enhances credibility of a business
No matter how many effective strategies you have formulated and brought into practice, you can’t win the trust of your customers, partners, shareholders, investors, lenders, employees, or others until you are transparent about your finances.
Accounting is the answer. The more you are evident, the more you are trustworthy! Therefore, accounting is essential to building and maintaining a healthy relationship with anyone interested in your business.
In addition, specific organizations (like non-profits) benefit from being as financially transparent as possible. Finally, up-to-date financial statements are essential if you want to fund your small business with a loan.
4. Accounting keeps the financial data in order
A business is no less than the western U.S. in its frontier period if not for accounting. It keeps your business organised so you have your financial data handy in case someone or you need it. Accounting records are all documents involved in preparing financial statements for a company.
Certain institutions or groups might be interested in your organization’s financial records. If your records are in shambles, it can have an adverse impact on your reputation and the health of your business.
An accounting system keeps these often-labyrinthine records organized so they’re easier to access and give to the interested groups.
5. Accounting is mandatory for all businesses
Typically, a business uses three distinct types of accounting – cost, managerial, and financial accounting – to gauge its income and expenses most efficiently.
The reports produced utilising managerial accounting practices are for the company’s internal usage and usually do not hold any value in the eyes of the law.
On the other hand, financial accounting, without a doubt, is mandatory for all organizations to ensure compliance with the law. Specific regulatory bodies also require companies to keep their accounting records for several years if they need to be reviewed.
In the UAE, companies are obligated to maintain the books of accounts for at least 5 years in line with the Federal Law No 2 of 2015 on Commercial Companies, UAE VAT law, and relevant free zone laws.
6. Accounting helps measure a business’ performance
An organisation’s financial records communicate about its health. Based on the financial reports, accounting enables management to evaluate its efficiency and profitability and studies the relationship between one accounting variable to another on their financial statements.
Ratio analysis is an effective and straightforward way to determine the financial results of your business in order to measure its performance. With the help of accounting ratios, you may compare your business against different standards using the figures on your balance sheet.
Looking back in the past to make comparisons or see if things are better or worse at present gets more manageable with a pro accounting system. Business setup consultants or accounting experts in Dubai like Adam Global can help you evaluate your business’ performance or implement a robust accounting system within the organisation.
7. Accounting saves you from costly mistakes caused by non-compliance laws
Non-compliance to laws in UAE can cause hefty penalties and fines, which are avoidable with a regular accounting. Having good accounting systems and processes helps keep your business in good legal standing. One of the main duties of an accountant is to handle the organization’s financial matters according to various laws and regulations.
An organization’s business might be reviewed at any time, so the financial records need to be accessible, accurate, and organized. Not having good records can get your business in serious trouble.
8. Accounting helps with budgeting & future forecasts
Budgeting and future projections allow you to plan for the upcoming financial year. Using your past financial records for this process is essential. The analysis gives you a valid starting point to use the past as a blueprint for a more profitable future. An accounting system designed by an expert provides you with the information you require for budgeting and future forecasts.
9. Accounting helps you keep audits at bay
Businesses hate to undergo an audit. Unfortunately, a flawed accounting system opens the door to the mistakes that catch the authority’s eye. Errors can include messing up a tax form, claiming too many expenses, many charitable donations, and more. Having a good accountant on staff prevents mistakes and decreases the likelihood of an audit, especially for small businesses.
10. An accounting system can deal with complex taxes or a large sum of money
Dealing with taxes sometimes in incorporations can be tricky for various reasons. Particularly if you have several income streams, for instance, you or your business receives investment income, you are coming into a large inheritance as an individual or giving a large financial gift. A good accounting system overseen by a professional can make your life an easy breeze. Accounting specialists in Dubai like Adam Global have solutions for all your accounting and bookkeeping requirements.
11. Accounting saves money
A pro accountant is tax-efficient and can save you a fortune. This means they can help you claim what you can, get loans if you are entitled to financial support, and maximise the tax deductions you qualify for. Knowing what you can deduct during tax season can be challenging at times.
However, things become more accessible with an efficient accounting system as it tracks an organization’s finances all year round. You may approach a business formation company in Dubai to know how you can save money on your business.
Have you got accounting & bookkeeping problems?
They’re not going anywhere. Adam Global Dubai can help. We are in the business of business – we live it; breathe it, and we love it! Outsourcing accounting services in Dubai, UAE, enables you to shift your attention to other responsibilities within your business.
Contact Adam Global accounting professionals in Dubai for a hale and robust accounting system so you can interpret your business’s performance and make strategic decisions with great ease.
FAQs
How accounting works in business?
Accounting is fundamental to handling a corporation because it lets you track income and costs, sustain statutory compliance, and offer quantifiable financial details to investors, management, and the government.
What is the importance of accounting in our daily life?
Accounting can be applied to our daily lives because it keeps and expands a company’s financial health. In addition, accounting is critical to running a business since it aids in tracking financial income and expenditures, management and statutory compliance, all of which can be utilised to make business choices.
What is the importance of internal control in accounting?
Internal controls aid in the precluding of monetary statement inaccuracies. In accounting, for example, reconciliation is a critical internal control procedure that assures the balance sheet account balances are correct, preventing financial statement falsification.
What are the golden rules of accounting?
Accounting’s Golden Rules
- Debit the receiver, credit the giver.
- Debit what comes in, credit what goes out.
- Debit all expenses and losses and credit all incomes and gains.