Accounting: Advantages

Introduction 

When you start a business or even decide to step into the world of business, “Accounting” is one of the first few terms that you might discuss. We define accounting as a process to record the financial transactions of a business. In every industry, there are tons of transactions that take place regularly. Accounting is a process that includes analysing, reporting, and summarising these transactions to tax collection entities, regulators, and oversight agencies. 

Today, in this article on the understanding of the advantages of accounting, you will get detailed information on financial accounting, the advantages of accounting, and other related topics of accounting. So, without further ado, let us get started with the concept of the advantages of accounting for class 11 in the financial accounting study material.

What is Financial Accounting? 

Financing accounting is a crucial branch of accounting. In this accounting, financial transactions of businesses are being summarised, recorded, and reported for a particular time period. These transitions are highlighted when cash flow statements, balance sheets, and income statements for a specific time period. In India, companies generally showcase the business transactions done during the financial year or the fiscal year between 1st April and the 31st of March.

In financial accounting, the accounting is reflected in the accrual basis rather than the cash accounting. For such financial matters, small firms, non-profit organisations, and companies take the help of accountants. When talking about the three major parts of accounting, these include a balance sheet, a statement of income, and lastly, the cash flow statement.  

Financial accounting is primarily based on various principles such as the Economic entity principle, Conservatism principle, Matching principle, Accrual principle, etc. Financial accounting has various advantages like systematic maintenance, taxation, performance analysis, and so on which we will discuss today. 

Role of Financial Accountant 

A financial accountant can work in both the private and public sectors depending on his expertise. To manage a general account, the duties may be different; however, when managing a firm’s account, the duties may vary. Financial accountants follow a bunch of accounting standards to obtain accurate results. These standards are issued by ICAI or the Indian Institute of Chartered Accountants in India. 

List the Advantages of Accounting

Every company requires different kinds of people to perform different functions. A financial accountant is required to manage financial accounts. Is it really necessary to keep a record of your business transactions? If yes, then what are the advantages of accounting standards? Let us have a look.

• Systematic maintenance of business 

Organisations are required to maintain a proper record of all transactions they make for business purposes. Accounting books are maintained for the systematic maintenance of business records. Every business requires to keep a record of all business transactions as –

• A financial record is needed for reporting the financial position of the company
• Keeping a well-maintained financial record is a regulatory requirement 
• The financial record helps during the time of financial statement preparation 
• Auditors use the financial record for obtaining appropriate and sufficient audit evidence

• Detection of frauds 

At times, frauds may enter the business from the backdoors; however, financial accounting includes recording all business transactions, minimising the chances of fraud and detecting any unfavourable activities. If all the business transactions are recorded regularly at fixed intervals, it becomes nearly impossible to engage and entertain frauds. Still, if fraud exists, there are several methods such as recording complex business transactions and fictitious journal entries, and so on for easy detection during the audit. 

• Business financial position 

Financial accounting states the real financial position of the business. It is provided to the owners of the business to analyse the financial position of the business. Based on the data extracted, further decisions are taken. In case a business requires some funds to meet the working capital requirements, it is arranged from trusted sources. 

• Financial statement preparation 

Financial accounting promotes easy preparation of financial statements as it keeps all the information ready required for easy financial statement preparation. 

• Performance analysis 

The last advantage of accounting standards is performance analysis. Once all the data is detected, it helps to analyse the business’s overall performance compared to the last year. Here, the businesses profits and expenses are compared with the last year’s records so analyse the overall performance. In case of dissatisfaction, corrective measures are taken.

We hope the advantages of accounting standards are clear to you all. Let’s move to the next topic. 

What is a Company’s Balance Sheet? 

A balance sheet is a statement of the organisation’s net worth as it includes all the liabilities and assets together. It also consists of a separate column for shareholder’s equity. The balance sheet is created for non-profitable organisations and not just for-profit organisations. 

Importance of Balance Sheet 

The person who knows how to read or interpret a balance can state a lot about the company’s financial condition. Here are several factors that state the importance of the balance sheet. Let’s have a look- 

• Investors, creditors, and stakeholders prefer using the balance sheet to analyse an organisation’s overall financial position
• The balance sheet is an ideal way of analysing the overall growth and development of the organisation
• When a company applies for the load, it must submit the balance sheet
• By looking at the balance sheet, the stakeholder’s organisation’s stakeholders analyse the organisation’s liquidity position and status
• It also helps to analyse future expenses

Conclusion 

With this, we end our study material on the advantages of accounting, which can be expressed as a crucial branch of accounting. In this accounting, financial transactions of businesses are being summarised, recorded, and reported for a particular time period. In this Study material notes on the accounting advantages, we studied financial accounting in length. 

We covered the advantages of accounting standards, the importance of financial accounting, balance sheets, and other related topics in detail. We hope the advantages of accounting study material must have helped you attain a greater understanding of this topic.