Most of the time, we think of the term accounting concerning paying our taxes yearly. For a business, accounting means something very different. It is a vital part of any business, whether big or small because it helps record all financial transactions, analyze them and report the results.
Accounting is necessary for all organizations as it helps to evaluate the business’s performance and make decisions based on that data. For example, to understand how much money is being made or whether you have enough to cover monthly expenses, you need a reliable, easy-to-understand, and consistent accounting solution.
A Simple Definition
Accounting is the recording, classifying, and summarizing of financial transactions. It is the process of digesting and reporting a company’s finances. Accounting involves identifying who owes what to whom for what goods or services were provided.
Accounting records are used by organizations to plan their activities and keep track of their performance – all to measure their performance against plans so they can improve on it and also serves as evidence when disputes arise over profits/losses, assets/liabilities, or other accounts.
A business needs accounting to track cash flow and valuations on three critical forms:
- Income Statement – tracks profits and losses for a business
- Balance Sheet – creates a comprehensive picture of your business’s financial picture
- Cash Flow Statement – bridges the difference between the income statement and balance sheet
Accounting vs. Bookkeeping
The primary difference between bookkeeping and accounting is in the function of each process. Bookkeeping is a record-keeping tool that allows you to track transactions as they occur. While accounting includes additional services such as recording and summarizing transactions, analyzing them for information, summarizing the results, and reporting on them.
Accounting also provides financial statements, including balance sheets, income statements, and cash flow statements, to help you evaluate your business performance over time.
Why Is Accounting Important?
Accounting is the lifeline of any organization. It helps in financial planning, budgeting, and decision-making. Without accounting, you can’t understand your business’s profit and loss statement, balance sheet, or cash flow statement. This is necessary for benefits like:
1 – Helps to Evaluate the Performance of the Organization
Accounting helps you in decision-making by actively analyzing and evaluating the current performance of business operations. This helps your business understand what is going on financially and where to place more emphasis to create profits and new revenue streams while lowering expenses.
2 – It Ensures Statutory Compliance
You have to remember that accounting is a legal requirement. It helps in complying with laws and regulations, financial standards, and internal controls. Accounting helps in complying with external audits too.
Accounting ensures that your business is compliant with the relevant laws, regulations, and standards of your industry. It helps you deal with complicated tax issues like tax shelters, partnership taxation, depreciation accounting, etc.
3 – Necessary for Planning and Budgeting
Accounting is essential for planning and budgeting, which are critical to the growth of a business. The purpose of accounting is to capture, process, analyze and communicate financial information to make sound decisions about the future direction of your organization.
Accounting helps you set goals by providing insight into your performance over time. It also gives you the information needed to monitor progress toward achieving those goals.
4 – Accounting is Critical for Taxation Purposes
A business has just as much obligation to pay taxes as an individual. In many cases, more responsibility because there are employees and assets relevant to others before they can file their own taxes. If your business does not file taxes, serious repercussions like fees and investigations can happen, which no one wants.
Where to Get Quality Accounting Help
Accounting is the language of business and is the basis for all other financial information. It provides the data needed to plan and budget for future activities of an enterprise.
Accounting is also an essential tool for decision-making because it provides information on whether or not a company has sufficient funds to pay its bills or needs additional funds from investors or loans from banks to meet unexpected expenses that may occur during normal operations.
Whether your business is starting up from a garage side hustle or you have numerous employees needing customized forms completed every quarter, accounting is necessary to daily operations.
At Adler Ezra & Associates, we focus on serving your needs first. Our professional and experienced accounting and advisement team are capable of creating the accounting structure you need for easy maintenance and reporting. This will help drive your leadership forward with the tools needed for proper decision-making. Reach out today and schedule a consultation. With accurate accounting, you too can experience significant business growth.
