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Advantages of Accounting

Advantages of Accounting: These advantages usually coincide with the ability for companies to improve operations and overall profitability. Business owners can also create a competitive advantage by developing cost allocation processes in their management accounting function.

Business is an economic activity undertaken with the motive of earning profits and to maximize the wealth for the owners. Business cannot run in isolation. Largely, the business activity is carried out by people coming together with a purpose to serve a common cause. This team is often referred to as an organization, which could be in different forms such as sole proprietorship, partnership, body corporate etc. The rules of business are based on general principles of trade, social values, and statutory framework encompassing national or international boundaries. While these variables could be different for different businesses, different countries etc., the basic purpose is to add value to a product or service to satisfy customer demand.

Advantages of accounting are as follows:

They Foster Transparency

One advantage of using accounting standards involves the ease of understanding the financial statements. The accounting standards published by the FASB represent the required processes for businesses to follow. Financial statement users expect companies to follow the published accounting standards when creating financial statements. These users rely on the assumptions set forth in the accounting standards when interpreting the results reported. The users interpret the financial statements of different companies using the same assumptions. Once the users understand these assumptions, they use this knowledge when reading any financial statement.

(i) Maintenance of Business Records: All financial transactions are recorded in a systematic manner in the books of accounts so that there is no need to depend upon on memory. It is impossible to remember the business transactions which have grown in size and complexity.

(ii) Preparation of Financial Statements: Proper recording of transactions facilitates the preparation of financial statements i.e. the trading and profit and loss account and balance sheet.

(iii) Comparison of Results: Accounting information when properly recorded can be used to compare the results of one year with those of earlier years so that the significant changes can be analyzed.

(iv) Decision Making: Accounting information helps the management to plan its future activities by preparing budgets and coordination of various activities in different departments.

(v) Evidence in Legal Matters: Properly recorded accounting information can be produced as evidence in a court of law.

(vi) Provides Information to Interested Parties: Interested parties like owners, creditors, management, employees, customers, government, etc. can get financial information about the organisation.

(vii) Helps in Taxation Matters: Income tax and/sales tax authorities depend for taxation matter on the accounts maintained by the business.

(viii) Valuation of Business: When the business is to be sold, the accounting information can be utilized to determine the proper value of business.

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