We are already aware of the fact that accountancy is an organized way of recording every transaction in a business which is financial in nature.These records help us to analyze the business situations, understand the overall result, and finally comprehend the company’s performance. There are numerous advantages of accounting which are explained in brief.
- Helping to enhance performance in a business
Every transaction taking place in a business is properly recorded in an organized way with the help of accounting. One can know about any incurred loss or a profitable gain in a business with the assistance of income statement which is composed of such accounting records.To find out a company’s gross profit or loss, trading account is created. And it is with the help of profit and loss account you can find about its net profit or loss.
- Documented proof
In the court of JAWS, these accounting records can also be put as an effective proof by a company for their claims. This documented evidence are made for every transaction which is entered and maintained by originals receipts. Due to this reason, these accounting records are accepted as verified proofs.
- Aiding the sales of a company
Asset values and liabilities values of any business are shown via their balance sheet or position statement. The net worth of a company can be highlighted with the help of this statement. It is with the assistance of accounting calculations you can make your decision regarding which business to vend (sell).
- Helping hand to administrative body
The management body of a company finds the usefulness of accounting in many ways.
- It helps in comparing the former or desired performance of a company with its actual performance.
- The assessment of actual performance can be made, and its effective line of action can also be decided beforehand which is important for its future prospect.
- Accounting is also helpful in calculating numerous liquidity ratios, sales and profitability factors.
- It assists the administrative bodies to evaluate a company’s performance achievements.
- To comprehend the gain of excess funds during the current year and the required application involved in it, fund flow statement is constructed.
- Apart from these, it also aids a company to recognize it weaker points or links and take proper measurements to remove those on time.
- Better option than memorizing
In a company, there are countless transactions of different types that take place every day. Most of these transactions are extremely complicated. And it is definitely not possible to remember or memorize all of these by any management body. Jotting these transactions down in an accounting book will help a businessman to keep track on his investments.
- Evaluate a company’s financial status
It is through position statement that you can see a company’s financial position. Position statement is also referred as a balance sheet. A company’s balance sheet displays the actual position of liabilities and assets which is composed at the end of its accounting year. You can even find the positioning of these assets and liabilities of a specific date.
- Help in debt realization
There are a number of groups who work together to run a profitable business. For all of these groups, separate personal ledgers accounts are created. These individual personal ledgers reflect the precise due amount from the mortgagors. These accounts books are very helpful for businessmen who can use this as evidence to prove their claims in court against debtors.
- Identifying and intercepting frauds
A good accounting system, whose systematic internal arrangement is effective, helps you to check for possible leakage of money and commodities and prevent them on time. Accounting also aids in uncovering the losses made by swindling or theft or the misuse of funds, thereby helping to file are port against those. A company when embraces proper accounting in their system can easily prevent their staff members to commit skullduggery.