Importance of Accounting

• Accounting plays an important role within the organisation
• Accounting is important for a number of reasons:

Importance and role of accounting

• It allows the business to record transactions for future reference
• Provides information about whether a business is profitable or not
• Provides information about the liquidity of the business
• Provides information about the assets of the business
• Provides information about the liability of the business
• Provides information about the capital employed by the business
• Provides information about the nature and amount of a business’s expenses
• Provides information about a business’s cash flows
• Provides quantitative information to various stakeholders including:
  • The owners of the business
  • Workers
  • Potential Investors
  • Bankers
  • The Government
  • Competitors
• Allows various stakeholders to calculate the financial position of the business
• Allows the government to calculate payable taxes
• Helps the government in setting economic policy
• Allows bankers to decided whether to lend or not lend money to a business
• Allows management to calculate business trends e.g is profit increasing or decreasing, is the business growing or shrinking etc
• Allows the business to produce financial statements:
  • Statement of Financial Position/Balance Sheet
  • Statement of Comprehensive Income/Income State
  • Cash Flow Statement
  • Statement of Changes in Capital
• Aids management in making decisions
• Allows competitors to gauge their own performance
• Helps the business to plan and budget for the future
• Helps the business in setting the prices of products
• Helps in managing cash flows
• Allows businesses to comply with the law (businesses are explicitly or implicitly required to keep books of accounts by the law)
• Helps in filling financial statements with regulators where filling is required
• Helps with courting investors