For good administration of a business, every merchant should know that accounting is fundamental, not only to comply with the tax regulations that affect the company but because it is a great tool to evaluate the success or failure of a business.
Despite having commercial and administrative skills, many merchants often face a bigger problem: the accounting of their businesses. And while most merchants are not accountants, they need to grasp basic notions in order to properly understand the accounting information of their company.
Accounting provides information that supports the decision-making process in the business, in relation to planning and control, making the processes of the company more efficient.
The importance of good accounting lies mainly in having valuable information for decision making, as well as keeping an accounting record for auditing bodies.
Accounting gives you accurate and real information, allowing you to make good decisions to, for example, invest, incorporate new technology and even evaluate the continuity of the business.
On the contrary, bad accounting also allows you to make wrong decisions that can lead to the failure of a company.
Why is accounting so important? Because it helps answer these important questions:
- How is my business doing?
- How much do I earn with my company?
- Am I generating enough profit?
- How much do I owe, and how much am I owed?
- Could I earn more by having better control over my expenses?
The accounting records historically, accurately, and faithfully record all the operations performed by the merchant, classifying them correctly and registering them in a methodical and justified way in accordance with commercial laws. This allows in turn to obtain summaries of figures through which, once analysed, will allow you to see the results of the company in a few tables called Financial Statements. Well-organised and up-to-date accounting is the compass that guides the company to success.
There are several important advantages which good accounting offers, according to the experts at www.gsmaccountants.co.uk. The following are the most noteworthy among many:
- It informs us of what we owe and what is owed to us.
- It allows control of expenses and investments.
- It helps to differentiate the expenses of the owners with those of the business.
- It tells us how much it costs to produce an item and for how much it sells.
- It allows knowing opportunely how much we are making or losing.
With an organised accounting process it is easier to get loans and advice. It is a guide, which allows us to know at a given moment, the financial situation of the business.
Objective of accounting
The main objective of accounting is the preparation of the financial statements that reflect conclusively, the true results of the commercial activities of a defined period of time and the true financial situation of the business to date.
Managing any business is hard work. Trying to manage one without solid, well-organised accounting information to hand is simply a recipe for disaster. Could you organise your accounting better?