The accounting function will ensure that liabilities such as sales tax, VAT, income tax, and pension funds, to name a few, are appropriately addressed. Laws and regulations vary from state to state, but proper accounting systems and processes will help you ensure statutory compliance when it comes to your business. Not only will clean and up to date records help you keep track of expenses, gross margin, and possible debt, but it will help you compare your current data with the previous accounting records and allocate your budget appropriately. In other words, they help you understand what’s going on with your business financially. Your financial records reflect the results of operations as well as the financial position of your small business or corporation. Here are just a few of the reasons why it is important for your business, big or small! It Helps in Evaluating the Performance of Business It is critical you keep your financial records clean and up to date if you want to keep your business afloat. The cash flow statement is a bridge between the income statement and balance sheet and reports the cash generated and spent during a specific period of time.The balance sheet gives you a clear picture on the financial position of your business on a particular date.The income statement provides you with information about the profit and loss.
There are three key financial statements generated by your records. Why Is Accounting Important?Īccounting plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information which can be used in making business decisions. There are many types, from accounting for small businesses, government, forensic, and management accounting, to accounting for corporations. The term accounting is very common, especially during tax season.īut before we dive into the importance of accounting in business, let’s cover the basics – what is accounting?Īccounting refers to the systematic and detailed recording of financial transactions of a business.
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