For many people, accounting is seen as nothing more than a legal obligation, something that must be carried out because there is no other option, ignoring how important and how useful it can be.
Accounting is perhaps the most important element in any company or business, as it allows knowing the economic and financial reality of the company, its evolution, its trends, and what can be expected from it.
Accounting allows us to know how much we have, how much we earn, how we earn it, and how we spend what we earn. (Read More: Internal Audit in The Service Sector)
Accounting not only allows you to know the past and present of a company but also to foresee the future, which is the most interesting.
Accounting permits you to retain absolute control and knowledge of the company. Allows you to make decisions with precision. It allows us to know in advance what may happen. Everything is reflected in the accounting.
Accounting is much more than a set of books and financial statements that you must present to the different administrative authorities that may request it.
It is ignored that accounting is the tool that will allow them to correctly manage their cash, their inventories, their accounts receivable and payable, their liabilities, their costs, and expenses, and even their income.
Types of accounting
In a company, there are different types of accounting, but to give you a clearer idea about the functions of each one, we have put together the main definitions of two of them to make it easier for you to understand them:
Financial accounting: This has the function of providing all the information necessary to manage the economic life of the business and to know the status of its accounts.
Generally, this function is external, that is, it offers the necessary reports to carry out all the financial steps of the company in a historical way.
Administrative accounting: Its main function is to accumulate and interpret all costs generated by production, purchase, or distribution for the internal use of the company. Its application is practically universal, that is, it is used in all businesses that currently occur to us.
Accounting is an important source of information for the company, and within the infinity of advantages that its application in the business world brings, we have selected some of the most important:
Thanks to it, we can know at any time how many are the exact amounts that we owe and what are those that we owe.
It permits modifying the expenses created by the owners over those generated by the business itself.
Its study and application alert us to general expenses and investments made.
It assists to know what the production cost of a particular product or service is, granting to detect the price for which it should be sold.
At any moment we can know the money that we are winning or losing.
Credit goes to the income sheet and the balance sheet; through them we can check what our current financial situation is.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
Posted by:
CA Aman Aggarwal