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Why is accounting necessary?

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Quick Answer

People need accounting because it keeps a record of cashflow, produces financial reports and monitors business expenses of an organization, according to the Houston Chronicle. Accounting helps owners make vital decisions to help their companies thrive.

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Full Answer

Accounting is imperative because the system reveals profit or loss margins in an organization, notes the BusinessDictionary. Accounting methods reveal such components as assets, owner's equity and liabilities. The system highlights all available resources a company possesses within a certain period.

Accounting keeps a record of when cash is exchanged, otherwise known as the cash basis method. Accrual accounting pinpoints exchanged and non-exchanged transactions in real time. Cash basis accounting is usually used by small business owners because it is an easier process, and large companies rely on accrual accounting due to government regulations.

Management accounting plays a vital role by keeping track of the internal operations of the company. Management accounting also forecasts potential sales and establishes budgets for a company. Financial accounting is the creation of financial documents for the benefit of stakeholders. Stakeholders use these reports to make investment decisions about the company.

The accounting field comprises of certified public accountants, otherwise known as CPAs. Accountants provide valuable services to businesses, such as tax return preparation and providing financial advice.

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