WHY YOU SHOULD LEARN ABOUT ACCOUNTING....

Hello friend. How are you? I hope all is well with you. Today I decided to take a closer look at accounting. What is its importance? Why need accounting knowledge?

Accounting plays a dynamic role in the success of any business enterprise. A business unit, for example an online women’s store, started by its owners to increase their wealth by making some business transactions. These transactions may be of diversified nature e.g. retail or wholesale trade, import and export of goods, selling of goods and services on the internet. All these transactions involve the process of purchase and sale of goods against any money consideration. There are three main types of business enterprise. These are;

-Sole proprietor

-Partnership

-Limited Liability Company

Every business enterprise is treated as a separate entity from its owners for accounting purposes. Accounting principles are applied by all these business enterprises to achieve their objectives. The main functions of accounting include the following:-

I. Confirmation or Verification of Profit and Loss; the main purpose of any business is to make a profit. Unless you are a weirdo or just doing it for charity; which is very unlikely….i think. Anyway, for this purpose, accurate and complete recording of all business transactions is essential because this information will be helpful to determine whether there was a profit or loss in any trading period. No business can survive in the long period without making considerable profits.

II. Facilitation of credit transactions; Most of the business transactions are made on credit basis. In this case, goods are purchased or sold without cash payment. These transactions are made on the basis of promises to make payments in future. Without credit transactions, business cannot be expanded beyond certain limits. If goods are purchased from a supplier on credit basis then the supplier is known as the creditor. Similarly, if goods are sold to a customer on credit then this customer is known as the debtor. Accounting records facilitate such credit transactions because these records will determine the amounts due to the creditors and due to the debtors.

III. Tax assessment; Taxes are imposed by the government in all countries. These taxes can be classified as income tax, excise tax and custom duty. For the accurate assessment of tax, accounting records must be maintained properly, otherwise, a business enterprise may be required to pay high tax to the government.

IV. Evaluation Of Assets and Liabilities; Every business enterprises has some assets and liabilities. Assets mean the possessions of business and liabilities are those amounts which are due to other persons. A statement of assets and liabilities can be prepared on any particular date which is known as the balance sheet.

If a business enterprise needs some loan from any bank or any other financial institution then this balance sheet is required by the prospective creditors. Similarly, this balance sheet will be required by the prospective investors or buyers on any business enterprise before making any decision.

V. A tool for control; a business enterprise can maximise its profit by increasing the gap between income and expenses. Proper control on unnecessary expenses and misappropriation of funds is essential. A proper and accurate accounting system will be helpful to maintain this control.

VI. A foundation n for further planning; For the further explanation for any business, a business enterprise can formulate its own plans on the basis of present and past achievements. Accounting records can provide sufficient data relating to sales, profit, investments etc for making decisions about the future programmes.

That is all for today friend. See you soon and have a nice day!