Why is accounting needed

Analysis of financial records can also help a company make decisions about hiring employees, making purchases, gifting charitable donations, and more. Preparing for tax season would be a nightmare and take up a lot of your valuable time. Having a good accounting system and accountant on staff makes the money-managing process much smoother and faster.

An organization can now spend time on other areas of business. During tax season, it can be challenging to know what you can deduct. An accountant can also point out deductibles you might not have known about. This is helpful for both organizations and individuals. Disclosure: TheImportantSite may be compensated by course providers.

Here are ten reasons: 1. Every industry needs an accounting system For as long as money has existed, so has accounting. Share Facebook Twitter LinkedIn. Emmaline Soken-Huberty is a freelance writer specializing in a variety of topics from healthy living to human rights and cookbooks. She lives in Oregon with her husband. When not working, she enjoys reading, baking, and exploring nature.

Everyone has to pay taxes, especially businesses. This comes with the potential danger of monetary penalties, seized assets, and even prison time in severe cases. Accounting prevents errors and omissions in financial statements. When the financial reports are done right, you eliminate the risk of being audited by the IRS. Accountants keep businesses clean; they make sure that all money is accounted for, and no dollar goes missing. Many states have implemented laws about closing the gaps in pay between co-workers of the opposite gender.

These laws prevent various behaviors. While this is a human resources problem, its relation to pay connects this issue with internal bookkeeping. The requirements mandated by equity laws make it crucial to have all salaries within a hierarchal group of jobs conform to the same standard.

While not technically a law, these are accounting principles that are updated periodically. Lenders may not want to work with you, thus lowering your credibility. Businesses are particularly vulnerable to fraud, especially small and midsized businesses. Because of the business's size, the effects of being targeted by fraud can be so much more damaging and harder to come back from. Businesses generally experience one of three types of fraud: theft, financial statement fraud, and asset misuse.

Theft is usually done by directly stealing cash, claiming fictitious expenses, or stealing property and assets. Surprisingly, theft is usually done by employees. Accountants can deter this by implementing checks and balances in the workplace to ensure that no one person has control over a financial transaction. For example, if one person writes a check, then a different person has to sign it.

Financial statement fraud has to do with inaccurate reporting and general corruption in which employees financially benefit from violating their responsibility to the company. To deter fraud, businesses often hire at least two people to handle the financial functions of the business interchangeably, keeping track of the handling of cash. They look out for unknown payment recipients, checks that were signed over to a third party, and anything that reveals intentions to remain anonymous.

Asset misuse could look like billing schemes, check tampering, using company computers after hours, and more. It involves company assets being used at inappropriate times, thus cutting into the costs of the company. Because asset misuse and other types of fraud result from employees accessing assets through a lack of control, accountants can establish proper internal controls for their business to prevent this. Internal controls promote accountability and prevent fraud in businesses.

Financial information often needs to be communicated to external parties. Businesses will always have stakeholders, both external and internal. External stakeholders are individuals or entities outside of a business who have a reason to care about the business's performance. Accounting mandates the task of digging up and revealing the numbers involved in the company's financial prospects to external stakeholders, which can seem like an intimidating process. However, communicating the financial prospects of a company can attract the eyes of investors.

Ultimately, everyone wants to make money. The law mandates public companies to publish their financial performance information every year for interested parties to look at. Not only is it necessary to communicate with external stakeholders, but internal stakeholders are just as important in sharing financial prospects as well.

Internal stakeholders are usually entities within a business that are significantly impacted by the performance of the business. They are employees, managers, the board of directors, and anyone who works for and with the business. Internal stakeholders are not just responsible for doing work but are also capable of giving valuable input on how the company could be run for maximum investment return.

Because internal stakeholders are usually employees or related to the company, accountants communicating financial prospects can actually motivate their behavior. They can help create bonuses—such as profit-sharing or stock-based compensation—that help with the team's productivity and morale. Accounting for businesses is separated into two types of accounting: management and financial. Both are important for businesses by ensuring their longevity.

Management accounting is concerned with the long term prospects of the company. They encourage wise spending and ensure that the products being sold are ultimately in the company's best interest. Financial accounting makes sure that all the work done for the business is in unity with the GAAP. It worries more about the day-to-day finances of the company. They prevent laws from being broken, keep stakeholders for the business happy, and allow the business to stay on top of problems. A business requires enormous amounts of data to be collected and analyzed over time to best proceed with future decisions, and accounting is the most effective way to do that.

Craig has spent 25 plus years in the world of accounting and business. He has worked as a controller and as a COO for small to medium sized companies. All of his experience has given him a vast knowledge of both book accounting and practical accounting experience which he has applied in all sizes of business.

This site also chooses to participate in other affiliate programs such as ShareASale, CommissionJunction, ClickBank and more, and is compensated for referring our audience to these companies. You can email us at contact accountingsmarts. Blog About us Contact us Subscribe. Why Is Accounting Important for Businesses? Last updated by Craig Fry on May 21, Show Hide Table of contents.

Accounting Helps with Important Business Decisions Typically, when people think of accounting, the notion of keeping track of numbers and money immediately comes to mind. The following are just some of the types of decisions accounting can help with: Cost-Benefit Estimates for New Products Management accountants develop cost estimates of ideas developed by designers.

Professional accountants assist business owners in making smart fiscal decisions while adhering to the compliance requirements.

Along with hiring an accountant, business owners are increasingly using online accounting software. The software syncs the accounting system with the banks and helps you understand your real-time cash position. It can also be used for viewing various accounting reports, creating expense claims and sending invoices on the go.

You can unsubscribe at any time by contacting us at help freshbooks. We use analytics cookies to ensure you get the best experience on our website. You can decline analytics cookies and navigate our website, however cookies must be consented to and enabled prior to using the FreshBooks platform. To learn about how we use your data, please Read our Privacy Policy.

Necessary cookies will remain enabled to provide core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

To learn more about how we use your data, please read our Privacy Statement. This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Review our cookies information for more details. Get more great content in your Inbox. Optional cookies and other technologies. I Accept No, Thank You.