Role of Accounting in Business

Posted by Rushabh Shah on May 22nd, 2020

Role of Accounting in Business

Accounting is the process of recording, classification, stigmatization, observation, and interpretation of various business information and expressing an opinion thereon.

Accounting is very crucial for any business organization as it provides valuable information to stakeholders, management, and other users about the financial position of the Business, such as sales, revenue, the amount due to suppliers, key management policies, and also helps in taking important financial and management decision.

There are different type of Accounting used in Business:

  • Financial Accounting.
  • Public Accounting
  • Management Accounting.
  • Government Accounting.
  • Forensic Accounting.
  • Tax Accounting.
  • Internal Accounting.

Use of Accounting for Decision making

Business Planning: the most common use of accounting data is for creating a budget and forecast for business planning. It helps in forecasting budgets such as sales and expense amounts, cash balances and other financial statements.

Business Analysis: it contributes to the analysis of the performance of the Business. Accounting information is frequently used for comparison of the actual figures with project ones to studies the variances.

Investment option: it also helps in deciding where the excess cash should be invested. The Company’s cash projection helps management to determine the cash requirements in the small and long term. After calculating the cash requirements, the management looks for investing opportunities. The investment prospectus’s financial statement is used for analyzing their suitableness.

Measuring Company’s liquidity: A firm has its short term and long term assets and liabilities and assets. The Financial ratio helps in analyzing the present cash holding of the Company and assess whether the Company can fulfill its obligation through its assets. Various liquidity ratios, such as Solvency ratio, Current ratio, etc.

What are the Basic Accounting Procedure?

The accounting process determines how companies record and report their financial information. The General Accepted Accounting Principles provides a common set of accounting principles, standards, and procedures for disclosure of various financial information. The guidelines act as a conceptual framework to help the Business to develop various accounting policies.

Examples of Accounting Procedure are:

Invoice payment from the suppliers.
Calculation of Payroll for Employees.
Bank reconciliation
Depreciation for Fixed Assets.

Accounting Procedure helps in designing sufficient controls for reducing the risk of loss and helps in organizing the business information in a structural and comprehensive format.

Users of Accounting Information

Accounting information of a business is required time to time by different people who use this information to analyses the financial health of the Business and other aspects of the Business.

There are many users of accounting information classifies as external users and internal users.
The external users are those individual or organization who has an interest in business information but are not part of the administrative process of the Business.

Examples of external users:

  • Creditors
  • Investors
  • Government
  • Trading partners,
  • Regulatory agencies etc.

Internal Users are those individuals who manage, run, and operate the day to day business operation. They are the person responsible for the day to day operation of the Business.

Examples of Internal Users:

  • Owners
  • Directors.
  • Managers.
  • Officers
  • Internal Auditor.
  • Employee. Etc.
Rushabh Shah

About the Author

Rushabh Shah
Joined: May 22nd, 2020
Articles Posted: 2

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