11 Important Needs of Accounting (with Examples)

Accounting or accounting system in any business or economy is an important part of managing your valuable money. Because without money you don’t calculate the profit and losses and your financial activities. So it’s very helpful for determining your financial activities and money management.

Accounting should be so designed the meet these new objectives also. The management information system should be built in while designing the accounting system.

need of accounting
need of accounting

Thus, there are lots of needs for accounting – 1. Systematic recording of transactions 2. Determination of profit and loss 3. Preparation of Tax Returns 4. Providing Necessary information to financial institutions 5. The depiction of Financial Position 6. Effective Control over Business 7. Providing information to Interested Parties.

We can discuss this in detail.

What are the Needs of Accounting

The Needs and objectives of accounting can be given as follows:

1. Systematic Recording of Transactions

The first objective of accounting is to record the business transactions and events by proper classification and book-keeping in proper books to show assets liabilities capital and profit and loss.

2. Determination of Profit and Loss

Business Transactions are done for Earning Profits.

Every businessman wants to know the results of transactions done in a specific period. For these, we prepare a profit and loss account.

Thus, excess of income over expenditure shows a profit for the period and if the expenditure is more than income then there is a loss.

3. Accuracy of Financials

A powerful accounting system is very useful for analyzing your financial data.

There are many types of accounting software are available to analyze your financial data for your business.

So, if the Accounts are Computerized it will give Accurate data at the Earliest time for taking corrective action.

4. Preparation of Tax Returns

One of the main needs of accounting is to provide the information for filling up the tax Returns of-

  1.  Income tax
  2.  Wealth tax
  3.  Sales tax
  4.  Value-added tax
  5.  Tax on dividends
  6.  Exercise duty
  7.  Import-export duties
  8.  Export incentive etc.

Thus, the assessment of tax is done on the basis of financial statements and vouchers.

5. Providing Necessary Information to Financial Institutions

If a businessman requires money from a financial institution, much more information regarding the business is to be given to these institutions.

Such as previous years’ sales, stock position, profitability, and financial position.

6. Depiction of the Financial Position

Every businessman wants to know the position of his invested money.

The balance sheet is the statement of Assets and liabilities of the business at a particular point in time and helps in ascertaining the financial health of the business.

7. Decision Making

An accounting system will make you a good decision-maker for your business.

Because accounting will provide all the data for your financials and money management so you can understand the way a business works and how you can improve with your good financial strategies.

You can make ideal decisions for your businesses with a good accounting system.

8. Effective Control over the Business

I want to tell you how to effectively control the business.

Accounting provides the actual data of Production Costs, Sales, Expenses, Profit, and Loss of the business.

The comparison between budgeted data and actual data and the data of other competitive firms can be done.

Generally, variances in the business activities are known by this process, and removing the various reformative action that can be taken by this effective control over the business is possible.

9. Providing Information to Interested Parties

One of the needs of Accounting is to provide information to creditors, employees, present and future investors, researchers, and society.

The interest of the loan givers and the investors is in the safety of their investment and in getting interest and dividends the interest of the employees lies in their wages bonuses and permanency.

10. Variance Analysis

When you want to calculate the different variances, you should go for an accounting system for data and calculations.

11. Cost Control

With a good accounting system, you can control your costs. Because an accounting system will provide all possible costs and revenues, so you can judge how they are working and giving benefits to your business.

So you can control your unnecessary costs in business and manage them in an effective way.

Thus, now we all know how accounting is very important for a business. It is providing your all financial solutions needs.

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