In this blog we will learn the uses of accounting. The main purpose of accounting is to accumulate and report on the financial information about the cash flow, performance, and financial position of the business. The development of any business is possible if we record all business transactions with the correct method and analyze them. There are following main uses of accounting.
- Avoidance of the limitation the memorizing power
- Compliance of the statutory provisions
- Identification of profit and loss of business
- Ascertainment of the financial position of the business.
- Assessment of the tax
- Knowledge of the debtors and the creditors
- Determination of the sales price of the business
- Evidence in the court of the law
- Assistance in taking a managerial decision
- Development of the nation.
Avoidance of the limitation of the memorizing power
Normally, the accounting is used for business purposes or for remembering the data easily. For a businessman, it is not possible to remember all the transactions due to limitations of the human memory. Accounting is helpful in recording all the transactions, and when a businessman checks the records, he can easily remember it and use it as his business purpose.
Compliance of the statutory provisions
If we see from an accounting point of view, the transaction recording is compulsory in any business and all the statutory provisions are fulfilled by the help of the accounting.In simple language, it is very important to keep a record of all the money.In India, it is compulsory to record all cash, purchase, and sale for joint-stock companies.
Identification of profit and loss of business
If anyone starts his business, his aim is to earn a profit in his business. There are only two outcomes of any business: profit and loss. Business does not fix at which time there will be profit and at what time loss. But for correct calculation in the business of profit and loss, it is necessary to record correctly by adopting the principles of accounting.
Ascertainment of the financial position of the business
From the financial statement, at a specific date, the knowledge of the assets of the company and the liabilities are found by the company. Assets mean all sources of business and liabilities means all payable amounts of bills. Financial position can be calculated by the business if the businessman records all the assets and liabilities in the accounting.
Assessment of the tax
Nowadays, there are so many business taxes that a businessman has to pay. Taxes like income tax, sales tax, property tax, excise duty, customs duty, and import duty, etc. Its correct estimation is possible only if the business records correctly all his income, production, and sale with the help of the accounting. But if the records are not made properly by the businessman, then the officer which checks the records of the taxes is the assessing officer. The assessing officer calculates the amount of tax with his own estimation.
Knowledge of the debtors and creditors
A businessman can find all about the amount with the help of the accounting. Like all the knowledge of the debtors and creditors. A businessman can easily find out the amount pending from the debtor’s side and how much amount he has to pay to his creditors can be easily found out. And this is possible only if the businessman manages its accounting records properly. And with the help of accounting, we can do this very easily.
Determination of the sales price of the business
If a businessman wants to sell his active business to a third party, he should know the selling value of that active business. He will be able to tell his selling value only if he has maintained his record well. If the businessman records investments properly then the sales prices of the active business can be determined.
Evidence in the court of law
If there is an argument between any two parties in the future. At that time, the court asks for proof. The records of the account will work as proof at that time. And in front of the court, the accounts which keeps under record properly will work like proofs for the court, and the court accepts the account transactions like evidence. So it is necessary for a businessman to maintain his company records properly and keep its records of the account clear.
Assistance in taking a managerial decision
Accounting is very helpful in taking the managerial decision. Accounting is very helpful in taking many managerial decisions like calculating the price of the goods and services, calculating the product mix and the sale mix, decisions of the purchase, different uses of plants, determination of the productivity of the different sources of the productions, continue and close of business decisions, replacements of machinery decisions, a decision regarding acceptance of any specific order, decisions regarding tenders, etc.
Development of the nation
A nation can develop with the help of accounting. Accounting can develop the nation when a businessman makes its records properly. When the businessman makes its records properly, then it means he cannot save the money which is called black money. It simply means that they cannot steal tax which they have to give to the government. If the businessman cannot steal the tax, that means he has to pay the tax to the government and the government can use this tax money for the development of the nation.The country will develop well if the businessman pays his tax in full honesty and time.
Now you have seen all important uses of accounting and we believe all of you understand the uses of accounting.
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