Helps in evaluating business performance

Accounting plays a vital role in business because it enable a person and a business entity to keep track of expenses. Accounting can enable managers evaluate the performance of a business. According to Kimmel et al. (2018), accounting keeps a record of the organization’s financial information. With comprehensive consistent and accurate records, users of the accounting information can evaluate the performance of the organization over time. By use of a accounting records, it is possible to understand what is happening in the business financially. It can help track expenses, gross margin, debt and can be a framework for comparison of current data in an organization with previous accounting records. This can enable a business to allocate funds appropriately such that it stimulates the economic performance of an organization.

Enhances an organization’s decision-making

Accurate information can enable an organization to make good decisions (Butenas, 2018). A suitable accounting system provides necessary information needed to make strategic decisions. An organization that maintains accurate financial data can analyze the data and use it as a basis for key decisions such as hiring decisions, decisions to increase production and much more.

Can help create a budget and future projections

Budgeting is key to the success of an organization. The channels in which investments are done can be the difference between a successful organization and one which is not successful. Financial records play a huge role in budgeting because the inform budget allocation decisions. Historical financial data informs projections and business trends. Research has shown that financial data is most appropriate when given in terms of well-structured accounting processes.

Communicates results

Accounting helps communicate results to different stakeholders (Kimmel et al., 2018). Some of the users of accounting information includes lenders, investors and creditors. Investors may use the accounting information to inform their decisions to buy organizational shares. Lenders will also use the accounting information to evaluate risks and determine if lending to the organization is an appropriate decision. Organizations have to ensure credibility with external consumers of accounting information through coming up with reliable accounting information which is relevant to their needs.

Meet legal requirements

Proper accounting can enable an organization to ensure they report liabilities and assets accurately. There are many laws that have been put in place to guide the conduct of businesses and ensure fair competition in the market. Tax authorities leverage standardized accounting statements to evaluate an organization’s declared net income and gross revenue. The accounting system can go a long way to ensure organizations report their finances accurately and legally.

Helps in filling financial statements

Businesses are required by the law to file their financial statements each trading period with the Registrar of Companies. Listed companies have to file their returns with stock exchange. This is for tax filing processes. It is very evident that accounting plays a very important role in those situations.

Although the application of accounting is more evident for businesses, it is also essential in personal life. Most people consider accounting the language of businesses but fail to acknowledge how important and applicable it is in daily life. By use of accounting, people can be able to organize their finances to remain financially healthy (Butenas, 2018). People use accounting unconsciously in their lives in many ways such as managing their expenditure and budgeting. In addition to those, people can use accounting to record their sources of expenditure. For instance, they can record the amount of money they made each month ordering it by source and amount. At the end of the month, a person can tell how much expenses they incurred that month and put measures to save money or earn more for the following month. This is just one of the many ways people can make their finances more efficient and effective. Apart from that, individuals can make financial reports in form of cash flows to evaluate their finances. Although this is a simple process, it is very efficient in evaluating a person’s financial position.

Accounting can also enable people to handle huge amounts of money and debt. Personal taxes are usually very complicated. It is very tricky for self-employed people to manage taxes. Some of the basic decisions such as giving financial gifts of getting an inheritance can make financial reporting tricky. Accounting c