18 Advantages of Accounting in Business Enterprise

The necessity of Accounting was deeply felt for keeping accounts of business concerns with the development of the corporate business. Keeping accounts in the corporate organizations has been made compulsory by law.

Nowadays, in all types of organizations and individual life accounts are kept for the required information.

However, the advantages of Accounting in business enterprise are stated below;

1. Permanent recording of transactions

In a business organization, a huge number of transactions occur. It is not possible for anybody to keep it in mind for long. The permanent keeping of accounts is possible since transactions are recorded systematically.

A businessman at any time can easily collect information from these accounts.

2. Ascertainment of profit and loss of business

At the end of a particular accounting period, profit and loss of a business concern can be ascertained by preparing an income statement.

3. Exhibition of total financial position

The total financial position of a business concern i.e. total capital, total payable, total receivable, total assets, and cash in hand and a bank can be known by preparing a balance sheet at a particular date.

3. Cost control

Head wise amount of income and expenditure can be known if accounts are maintained systematically and properly. As a result, excess expenditure or misuse can be controlled and expenditures are controlled keeping consistency with the income.

4. Helping management of business

Planning regarding income and expenditure becomes easier through proper and accurate accounts keeping.

Appropriate steps can be adopted identifying profitable and non-profitable items of income and expenditure. Besides, sales price and income tax are determined through accounts.

5. Prevention of errors; fraud and forgery

Prevention and detection of fraud and forgery are possible by keeping accounts systematically. Arithmetical accuracy of accounts is also tested by preparing trial balance. And timely steps are possible, if necessary, like rectifying the errors in accounts.

6. Comparative analysis

Current year’s profit-loss and property-liabilities can’ be compared with previous year’s matters of similar nature if accounts are kept systematically and accurately. This helps the businessman in formulating rules and taking decisions.

7. Helping settlement of the dispute

The misunderstanding may arise among the interested parties in a business concern i.e. debtors, creditors, investors, owners, employees etc. Systematic and accurate accounts’ keeping minimizes the possibility of such unwanted developments.

8. Helping determination of tax

The systematic keeping of accounts in accepted principles helps to present reliable income tax statements based on which income tax is determined.

9. Keeping accounts regarding VAT

Accounting records all transactions of VAT systematically and helps to determine VAT.

10. Knowing cash position

In cash book, all cash receipts and cash payment are recorded. Day-to-day cash receipts, payments and cash in hand and cash at bank can be known from cash book. Information regarding cash in hand is very essential in running business.

11. Control over assets and liabilities

A businessman is to acquire various types of property and assets to run the business profitably and thereby he is to face a lot of liabilities.

The exact position of the assets and liabilities can be ascertained by maintaining accounts properly. As a result, a businessman can take necessary steps to control decrease of assets and an increase of liabilities.

12. Authentic and presentable documents before the court

In settlement of disputes among interested parties of business, cases are filed in the court. Accounts kept properly can be presented before the court as documentary evidence.

13 Helping in the valuation of assets and liabilities at the time of winding up the business and in case of insolvency of the owner

In both cases of winding up and insolvency, authorities concerned can determine the value of various assets and liabilities properly from the books of accounts maintained systematically and accurately. Under this situation, accurate valuation of assets and liabilities is very essential.

14. Helping in fixation of the sale price of a business

For any reason, the question of selling the whole business or a. part may arise in course of time. In this situation, an accurate selling price can be determined on the basis of properly kept accounts.

15. Testing arithmetical accuracy of accounts

Under double entry system of accounting errors and frauds in accounts, if any, can be detected easily by preparing a trial balance and appropriate measures can be taken in time for rectification.

16. Matching of income and expenditure

Overall development of a business is possible through matching income and expenditure if accounts are kept properly.

17. Advantages in taking a loan

Taking loan becomes easier if accounts are kept properly. The loan giver sanctions loan on the basis of accounting information.

18. Settlement of outstanding debts receivable

Properly kept accounts help in preparing the statement of outstanding debts and receivable and thereby measures can be adopted for timely payment of debts and collection of receivables.