Question

Discuss in detail the importance of accounting.

Answer 1

The importance of accounting are as follow:

1. Systematic records: All the transactions of an enterprise which are financial in nature are recorded in a systematic way in the books of accounts.
2. Preparation of financial statements: Results of business operations and the financial position of the concern can be ascertained from accounting periodically through the preparation of financial statements.
3. Assessment of progress: Analysis and interpretation of financial data can be done to assess the progress made in different areas and to identify the areas of weaknesses.
4. Aid to decision making: Management of a firm has to make routine and strategic decisions while discharging its functions.
5. Satisfies legal requirements: Various legal requirements like maintenance of provident fund (PF) for employees, Tax deducted at source (TOS), filing of tax returns and properly fulfilled with the help of accounting.
6. Information to interested groups: Accounting supplies appropriate information to different interested groups like owners, management, creditors, employees, financial institutions, tax authorities and the Government.

7. Legal evidence: Accounting records are generally accepted as evidence in courts of law and other legal authorities in the settlement of disputes.

8. Computation of tax: Accounting records are the basic source for computation and settlement of income tax and other taxes.
9. Settlement during mergers: When two or more business units decide to merge, accounting records provide information for deciding the terms of the merger and any compensation payable as a consequence of merges.