Financial accountancy is an art and science that involves recording transactions in a particular manner. This activity can be traced back to the times of barter exchange when pottery and charcoal was used to keep a record of such contracts and transactions. The idea of accounting is simple, record the transactions as briefly and honestly as possible. Luca Pacioli, a 15th century mathematician and philosopher introduced the double entry book keeping rules and terms (the system had been used before on smaller scales), which further advanced the art of accountancy. Today, there are countless purposes for which books of accounts are prepared. The importance of accounting and its scope has increased as accountancy has not just remained a skill of keeping records. Deep analysis, compliance, rectification and lawfulness have become some new integrals of accounting.
Why is Accounting Important?
From a layman’s view, accountancy is used to keep records of transactions. Thus, most basic and simple motive of such an activity is to keep a record for further use. This recorded data helps the person to determine the earnings and expenditures that have taken place. In addition to that, such records are also proofs that such a transaction has taken place. The last basic intention is to determine fields where the income can be increased and expenditure can be decreased.
Personal accounts are simple to maintain, but the double entry system accounts are quite difficult and complex. However, the double entry system is a preferred method as this system is used to record and analyze money or money worth that gets transacted.
Importance of Accounting in Business
In the world of business, the accounts and finance departments are engrossed in a daily activity of recording and analyzing transactions. The basic task is to first analyze the proposed transaction and then sanction it and record it. The business world functions upon such daily routine juggling of transactional data. The further process involves making statements and presenting it to the management for further analysis and strategy planning. From the statuary compliance point of view, the process of accountancy must be done with the help of Accounting standards which are prescribed by law. The accounting standards provide the accounting department with a framework that has to be respected and lawfully followed.
Another process that is a very important branch of accountancy is costing. The process of costing involves mathematically calculating the value of a particular transaction even before it takes place. Cost sheets which contain such information are also included in statements that are put before the management.
Importance of Accounting Information
Accounting information is basically the summarized version of all the accounting information that has been recorded in the year. The accounting information is used by a number of people such as government officials, investors and creditors. It is customary and by law compulsory for companies to present an annual report before the public, that carries accounting information of the previous year. Such a report is often used as a conclusive evidence while calculating the tax liability of a business or a company. Apart from that, creditors extend their credit on the basis of such information. In addition to that investors conduct their routine balance sheet analysis on the basis of that information.
On the whole, the importance of accounting can be summed up with one epic statement from Jerry Maguire, ‘show me the money’. Books of accounts indeed show us the money and its worth. More than that, such books shout aloud the areas where we are wasting it and the areas where we are not earning it. Today, as a result of Information Technology we have convenient accounting software and accounting terms that are being introduced every day. The basic aim has however, remained the same.