Accounting plays a crucial role in running a business. It assists the business in taking important decisions. The summary of all transactions made by the business in a year or a period of time, arranged in an orderly set of financial statements, can help you see what is going on in a business clearly.
The financial statements can also help a business see the results of previous decisions taken by the business owners and how these decisions impacted the business. Thus, it is paramount to have a basic understanding of accounting for growing your business. If you want to learn the basics of accounting then it is recommended that you sign up for an Accounting Certificate Course in Ahmedabad from Super 20 Institute or any city of your choice.
Now, before we jump into why accounting is important for business growth, let us first take a look at what accounting is.
Accounting is a detailed systematic recording of the financial transactions of a business and financial statements are formal written records of a business’ position and financial activities.
The three chief financial statements made by your records are:
- The income statement that informs you about the profit and loss.
- The balance sheet gives you information about the financial position of your business on a particular date.
- The cash flow statement informs about the cash generated and spent during a particular period of time.
Here are some reasons why accounting is important for the growth of a business.
For Evaluating Your Business’ Performance
Accounting maintains a record of expenses, gross margin, and possible debt. This helps to give you a better understanding of the result of operations of your business as well as your business’ financial standing. Simply put, it helps you to see a clear picture of what is going on in your business from a financial point of view and this allows you to evaluate the performance of your business by comparing your current accounting records with your previous accounting records.
Helps in Conforming to Government’s Laws and Regulations
There are various government laws and regulations that a business has to comply with otherwise it can face penalties. Most of these laws involve accurate reporting of financial transactions. Accounting helps you to accurately record the financial information as it records these transactions in a systematic manner. This makes it easier to verify revenues, expenditure liabilities, and assets. Thus, in this way, accounting helps in ensuring statutory compliance.
Budgeting and Future Projections
Accounting helps in budgeting and predicting the expected revenues and expenses. You can compare your current accounting records with your previous accounting records and allocate the budget accordingly and this will also give you an estimate about what revenues and expenses you can expect to incur in the future.
Business trends and projections are formed on previous financial information to make your operations incur profits and this financial data will only be appropriate if it is recorded in a systematic manner through accounting.
Filing Financial Statements is only possible through accounting
Accounting plays a major role in the filing of financial statements of a business with the Registrar of companies as well as for direct tax and indirect tax filing reasons. Thus, filing financial statements is only possible through accounting.
Accounting is important for getting loans and investments
Investors and lenders never invest in a business without having any information about the profitability of a business. To obtain knowledge about this, they require financial statements of your business.
Thus, without maintaining accounting records of your business you would not be able to find investors for your business and as a result, your business will not grow.
Maintaining accounting records of the financial transactions of your business is of utmost importance for the growth of your business. It is crucial for big as well as small businesses to maintain a systematic record of their financial activities so that they can evaluate their performance and formulate profitable strategies for the future. Learning Accounting or GST course in Ahmedabad from reputed institute is important in order to comply with the government’s laws and regulations. You might miss out on getting investors to invest in your business if you do not have accurate accounting records of your business.