Why Is Accounting Important?


Quick Answer

Accounting is important because it provides an objective picture of a business' financial success. In addition, accurate bookkeeping and accounting is extremely vital for tax and legal purposes. Many companies are required to have particular accounting procedures in order to comply with legal code.

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Full Answer

Accounting has been around as far back as trade and business industries have been around. More importantly, very little has changed in the scope of what accounting is designed to accomplish.

There are two types of accounting: cash basis and accrual. Simply put, cash basis logs transactions when the money is spent, while accrual logs the transaction even if the money hasn't been spent yet. Moreover, accounting can also be divided into two categories: financial and managerial. Financial accounting is composed of information accessible by the general public, such as stockholders and customers. Managerial accounting consists of accounting that's not available to the general public, such as costs of goods and salaries.

Accounting exists to protect a business' assets, ensure employees are being paid, file taxes properly, and analyze trends to predict its profitability. In addition to predicting a company's profitability, accounting is extremely valuable for the reports it generates. Accounting is responsible for reports such as cash flow, budgets, accounts receivable, accounts payable and balance sheets.

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