Accounts/Accounting is the most heard term in the business environment irrespective of the size of a business. No matter big or small, every business has its accounting systems in place, Its effectiveness is a separate discussion altogether. The significance of accounting in the business world has always been a subject of concern and discussion. Accounting in simple words is just the recording, analyzing, and summarizing of the monetary transactions of any business. Separate accounting approaches may be followed but they tend to serve the same purpose whatsoever. By the passage of time and evolution of the business world, its concepts have gone through many changes with the core purpose being the same. Accounts practices are the medium through which any business “communicates” with its stakeholders, or we may say that accounting is the “Language of Business”.
A business to run smoothly needs records, data, reports, made correctly to extract information regarding its profits, debts, collectables, assets, liabilities etc. Accounting system ensures the availability of these vital information enabling the handlers to take necessary measures to yield desirable results. There are now countless accounting companies in UAE that serve this purpose and ensure client’s satisfaction.
Importance of Accounting
A business can be an individual or a group of people, joining together by pooling their resources commercial in pursuit of specific commercial goals. Commercial goal in case of the business is always sustainability, profit, and market share. Accounting as a tool act as a beacon and guides the business to its correct path by highlighting the areas that need attention and to rectify problems being faced or that can arise in the future. Accounting has a great significance when growth is the primary target, accounting helps businesses in.
Planning Budgets
Success for any business comes at a monetary cost, efficient business always keeps a track of their cost and plan them accordingly. In the business language this cost planning for the future is called “Budgeting”. Budgeting aid a business to strategies itself, monetary savings by highlighting abnormalities in its spendings by highlighting the excess spending areas. While making a budget the businesses rely on their previous records and based on these records businesses tend to forecast their future requirements and in turn plan the availability of funds to meet their operational requirements.
Lenders and Banks
It is normal occurrence in the business environment that a business may have to rely on external financing, this financing can be from an individual, other businesses, and banks. To secure funds from any of the external agents, proper financial records must be presented to satisfy their concerns and enable them to extend a loan to the business. An effective accounting system in place ensures that the ledgers and books depict the correct information of the areas and can highlight areas where the financing is required and how the borrowed money will be spent. All the financial institutions check the records related to profit & loss, assets, liabilities, taxes etc. and base their decisions on the information extracted from these records. A proper accounting system makes sure that all the vital information is properly recorded and presented.
Record Keeping
Any business relies heavily on its records to make its decisions. These records aid smooth running of any business. Accounting plays a major role in record keeping, a proper accounting system has to be adopted and implemented that is able to record and present the necessary information as and when required. Any anomalies in the accounting system directly affect the business, a proper, efficient, and able accounting system presents an accurate information regarding all the aspects of the business and refrains any false to be entered and hence presented.
Taking the Right Decision
Any decision in the business environment entirely depends on its accounting systems. Management refers to the financial records to gauge the health of the business and shape their decisions accordingly. All the reports are gone through in detail to highlight the strengths and weaknesses of the business and plan strategies to yield desirable results. What if the information that is heavily relied upon is false? This will result in the decisions being made will result in losses and decline in the overall business performance. An able and accurate accounting system help ensure right decisions at the right time.
Information for Stakeholders
The books of accounts and the financial statements are the sources of information for the stakeholders in any business. Their decision that directly impact the business and its future performance depend heavily on the decisions of its stakeholders. If the accounting system presents accurate and timely vital information, stakeholders tend to make the best decision for the business having positive impacts on its overall health.
Profit/Loss Reporting
Primary objective for any business is to make profits and minimize its losses. Profit calculations heavily rely on the profit & loss statements generated by the accounting system. An accurate accounting system considers all the financial factors that have a direct or indirect impact on its profit & loss statement.
Managing Cash Flows
Monitoring and managing cash flows in any business is mandatory, cash flows out of hand have a devastating impact on the business health. Cash flow statements are an integral part of the accounting system, effective accounting practices help manage the cash flows without any negative impacts and enables the management to plan cash in a way that a business has sufficient cash available to operate smoothly. Disturbed cash flows hinder the business performance hence resulting in both monetary and opportunity losses.
Accounting is of two main types, financial accounting, and Managerial Accounting. Financial accounting aims at the generation of flawless financial statements, which are usually used when a business has an aim to secure external financial assistance for bank and other lending agencies. Whereas managerial accounting analyzes the information from financial accounting and use that information to plan the internal strategies and shape the decisions for an internal business environment.
Conclusion
The significance of the accounting system is unquestionable, no matter what the business size is, it needs an accounting system to operate and sustain.
BS Auditing of Accounts is a leading auditing and accounting firm in Dubai. Our team of skilled Approved auditors in DMCC UAE provide the best guidance in all matters related to this field.
Feel free to contact us:
• Office # 0641, Tamani Arts Offices, Business Bay, P.O. Box 111390, Dubai, UAE
• +971 4 570 7357
• +971 58 108 5690
