We will start with accounting. What is accounting? Everyone will be very familiar with the term accounting, even if you are not so aware of what it is. Especially during the tax season, the most common term heard in a firm is accounting. Basically accounting means the process of recording or maintaining all the records of financial transactions in a business/ company. In accounting many functions are carried out like summarizing the transactions, analysing and gives a report about these transactions for higher authorities or tax entities. Also depending on the size and nature of the organisation, there are different types of accounting like accounting for small businesses, for government, for cooperate businesses etc. For the growth and to improve a business, accounting plays a vital role. Let us see how accounting affects a business.
Importance of Accounting
Accounting is considered as an important key to the success of a business as accounting keeps track of all the financial transactions of a company from income and expenditure, it helps the investors, government by providing all the financial information regarding a company. And all these records are essential to make business decisions.
If you want to run your business easily and without any financial crisis, you will need a clear and well organized financial statements and records. There are 3 types of financial statements mainly generated from your financial records in order to run your company smoothly, they are:
- The Income Statement:
Income statement gives you all information regarding your profit and loss of your business which is of course the most important one.
- The Balance Sheet:
A balance sheet is prepared in order to understand the businesses current position say on a particular month or day.
- The Cash Flow Statement:
A cash flow statement is a link between income statement and balance sheet, it gives us the details regarding how the cash is generated and how the cash is spent during a specific period.
Now you must have got an idea why accounting is a crucial part of business. At any point, we should be able to analyse the business’s financial status so keeping the records clear and up to date is inevitable.
Accounting and performance of business
With accounting, we will be able to have all the records regarding your financial transaction, so at any time we can analyse and study the past and current financial position of your business. Also we can plan and make decisions for future by studying these data. Future financial analysis is the major advantage of accounting.
Future Predictions and Decision Making
Like I mentioned earlier, apart from getting the information about the expense, income, margin and debt accounting helps the businesses to prepare the budget and future financial projections. It’s the budget and future projections that decide whether a business can make or break in the future. We all know we can make future projections from the historical data only so keeping the record is very important. Also only with the help of future projections we can run a business profitably.
Filing Financial Statement
As per the government rule, all the companies are required to file their financial statements at the registrar of their companies. They have to file all the transactions for the purpose of taxes like direct tax and indirect tax. So not just for the benefit of the company but also it’s necessary to keep the record for official purposes like tax. That’s why accounting has become a mandatory for all the companies, be it small or large company and audit firms are helpful for this job.
In brief, accounting helps you to tell whether your business is running in profit or not, accounting helps you to understand what is your company’s cash flow is and ofcourse the current financial status of your company. It is always better to take advice of audit firms in Dubai and make them do your accounting and auditing io order to make everything clear and well organized than messing up with all the accounts data. Not to mention, accounting starts the moment a company is formed or when a transaction is made and is required to maintain a record of it for the perfect running of company.
Financial statements audits are essential in all stages of business to improve the performance and profit in future also to avoid the mistakes. Studies show that the companies that don’t do accounting and audits in time and those who never do have to go through financial crisis. Nowadays it has become mandatory to consult accounting firms in Abu Dhabi, UAE and let them do the accounting for the growth and prosperity of the company.