Why is accounting important to business?


Quick Answer

Accounting allows businesses to calculate their profit and perform analyses. Accounting is important for determining if a company's earnings reports are accurate, making it important for stockholders and regulators.

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Full Answer

A company needs to earn a profit to thrive, and basic accounting is important for determining whether its revenue is greater than its expenses. While basic accounting is fairly simple, finding all areas where a company is spending and earning money is potentially challenging.

Investments tend to make the process more complicated. Companies need to invest to grow, but the cost of an investment changes over time. In addition, companies have the ability to change how they deal with investments in order to pay less in taxes. Accountants are able to analyze this data and determine better ways of reporting revenue, spending and investment.

Noticing changes over time is also difficult, and companies rely on accurate accounting to determine if their tactics are working well. Tracking changes in customer interest after an advertising campaign, for example, requires tracking sales before and after the campaign has begun. Accountants are able to collect this information and factor out other variables that can cause changes. Most accountants now use computer tools to help them deliver more informative analytical reports.

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