Accounting or accountancy is no doubt the universal language of businesses and figures. Those that fluently speak this language of business are called accountants. The importance of accounting and accountancy cannot be over-emphasized as the evidence is there for all to see.
Imagine what this world would look like if all means of communication are removed from our daily activities. The world would be full of chaos and anarchy you know.
How then do people expect businesses and financial environment to be free from financial troubles and global economic meltdown when a lot of people fail to appreciate the importance of accounting and accounting information in their daily business activities?
I urge you to learn the rudiments of setting up an accounting department for your business today if you are amongst those that have hitherto not appreciated the importance of accounting.
Are Accountants still relevant now that we have accounting software?
This has been the question on the lips of many uninformed people for over half a decade now. You will hear question like ‘do I still need qualified accountants now that I have fully automated my accounting activities?’. My standard answer to the above question is; ‘try ignorance if you this that education is expensive’. No amount of advancement in business technologies and artificial intelligence that can take the place of accountants especially if you are a hybrid accountant with all the next generation skillsets required of accountants.
In this article are some of the importance of accounting and accounting information.
IMPORTANCE OF ACCOUNTING AND ACCOUNTING INFORMATION SYSTEM
This section of this post will dwell on the reasons why a business enterprise must have one form of accounting or the other. Notice that the points discussed in this part of the article applies to both profitable and not for profitable organizations.
ANALYSIS PURPOSE/ DECISION MAKING
All our business and economically informed decision making are based on sound analysis of financial statement which is a product of accounting information system. Without a properly kept account, this objective will probably not been achieved and business executives will all be acting in blindness. Investors both current and potential base their investment analysis on accounting information. Information on: profitability, liquidity, efficiency etc are all obtained from the information provided by accounting information system.
RECORD KEEPING
No economy will stand well economically if records are not well kept and acted upon. Accounting is one of the primary vehicles of record keeping. Data are gathered from their various sources, collated, organized, analysed, interpreted and communicated to the end users for an informed economic decision making that will in the long run yield positive fruit. Countries are able to plan their economic activities are chiefly as a result of the valuable information gathered through all forms of accounting (making use of statistical tools). Governments use the records of companies to make fiscal and monetary policies.
PREVENTION OF FRAUD AND DISCOVERY OF FRAUD
Frauds can only be discovered and prevented in an environment where there is good internal control in place. And a good internal control cannot be in place where there is no form of keeping track of events. Accounting and accounting information system is the only way of keeping track of all these in an effective and efficient manner.
GETTING OF FUND AND LOANS
You cannot get loan from financial institutions if you cannot present your financial state of affairs in an acceptable manner. Accounting as a communication tool obviously have generally accepted formats which financial institutions and banks use as a basis for measuring the risk of a business.
REPUTATION AND CREDIT BUILDING
Reputation and business credit scores can be improved by the simple act of establishing and operation a sound accounting information system in an organization. The belief is that any company that has the got to have an accounting system in place will be efficient in all other aspects of business operations.
The above five points are some of the importance of accounting and accounting information. If accounting is not that important, why then did God Almighty bother Himself in becoming the first accountant? Oh! You don’t know that God is an accountant? If not, how then did we have record of the account of creation well documented?
PROVIDING INSIGHTS FOR FORECASTS
When analysed, accounting information which is a direct product of accountancy gives valuable business insights that can make the difference between a thriving and a struggling business. These insights are then used to make intelligent forecasts for the benefit of the business.
Well, now that you have known the importance of accounting, it is up to you to put an accounting system in your business. Ignore accounting and accounting information and watch your business and financial life go down the drain. You may also want to read my piece on the functions of accounting department to gain more insights into this subject matter.
catrina says
ang akawnting ay isang napakahalaga at pundamental na gawain ng tao. ang simpleng agtutuos ay matatawag ng akawnting, ginagamit ito sa pang-araw-araw na pamumuhay ng tao.
simon says
i want to start by thanking you for the wonderful articles you have here there are all educating, i want to ask a question, how do i start a good accounting for a new small business. thanks
chinweike says
Simon, thanks for taking time to read this article and asking question. What most small businesses need is a simple accounting system that will ensure that income and expenses are accurately captured, measured, recorded. If you have the right expertise, the use of simple accounting package like PeachtreeAccounting will serve all your accounting need.
The most important thing is discipline as I can tell you from ecperience that many small business owners tend not to give attention to the movement of economic resources and end up regreting it badly.
Cheers!
Ngozi Stacey says
Pls i need answer to this question: 1.what is the major purpose of accounting records and reports. 2. Compare the characteristics needs or desired in financial statements by : a. Bankers. b. Investors. c. Unions. d. Management. Thanks
chinweike says
NG,
The major purpose of accounting record is to allow users of accounting information make an informed economic decision. In fact, I will make a post that will specifically answer these questions. Check back on 29th of May 2011 for a post that will have provided an answer to all the questions. Thanks for reading and asking this question.
Chinweike
sara rahan says
These articles are very informative as well as constructive.They have helped me a lot in my Bachelor’s Programme.Thank you so much.
juliet says
What is the diference between Accounting and Acountant
chinweike says
Juliet,
While accounting is the process, accountant is the owner of the process.
Teejosh says
Im very greatfull for this article! Recently went for an interview as a post of an accountant and was asked to justify why I was needed but I flopped explaning elementary points rather than relevant info like those which I’ve gone thru here. Im better equipped and dated with the info presented here! Tks again and lots of luv to you guys………cheers
Ma Khine says
This is my opinion only,in our country most local business owners are not
very familiar to financial & accounting terms & usage & concept .
They just keep on thinking that expenditure and income is cash receipt
& payment .That why they did’nt accept expenditure like Depreciation,
accrued expenses & also thay always think on the Income statement ‘s
shown Profit is Cash they always ask when we report financial statement shown profit ” where my money ”
May I ask ” very easier way & clear way to Explain the Boss ??
chinweike says
Ma, thanks for reading this article on the importance of accounting. I honestly would love to answer your question if I understand it. Could you please rephrase it? Thanks once againg.
famous says
I have learnt alot on your post. Please, what is the importance of Accounting and Banking to a Nation and a community-village- and what can what can I do to improve on it in 10 years
ola says
i sincerly enjoy ur post. But, i which to be an accountant but am not good enough in calculation. I need ur advise. Pls!!! Help me out. Thanks
chinweike says
Ola my Brother, I was never good in calculation when I gained admision to study accounting. Besides, who told you accounting is all about calulation? There is more to accountancy than numbers. You can send me an email with what ever question you have in accounting. I am not promising to give you a definite answer but will do my best to give you resource materials.
Thanks for the comment.
Helen says
Thank you for this post! I am currently writing my personal statement as i’m applying for accounting and finance. Do you have any tips to give me? What should I include? I am currently studying mathematics, physics and chemistry at a-level. Any help is much appreciated. Thanks again.
chinweike says
Dear Helen, I suggest you empahsise on your strong analytical skill and articulate mind as these are what you need to make a better accountant. Accounting profession needs more people like you to make it more relevant in the society. Thanks taking time to read this article.
Yours in knowledge sharing,
Chinweike
Mathew Dayogon says
Tnx 4 dis article of yours. It really educates me d more in d field of accountancy. Keep d gud work.
chinweike says
Thanks Mathew.
Kapil Bhatia says
Great answer thanks for this it realy help me in my lacture
chinweike says
welcome
Pat says
I appreciate your article. Please, what is the importance of a course in accounting in a religious institute training clergy men and women?
chinweike says
Pat, Thanks for asking this intelligent question. I have an article that specifically talked about the inportance of accounting in churches. The whole idea is to create an enabling environment that will boost the confidence of worshipers.
Joe says
Really ur post hv ignited my passion on goin futher in accounting as a proffesion. My quest. Is can dis five importance of accountin boost the financial power of a business
chinweike says
Joe, Combined with other business success factors, yes, they can.
olawunmi says
pls ma answer dis question for me if i was asked dat why did i study accounting how am i going to put it down am in a interview right now pls i need ur help
Hope says
i have a very strong passion to study accounting and an outstanding one at that, pls i need u to advice on some basic things to know in accounting cos am having some challenges in some of its principles and application thanks
Mercy says
Importance of Acounting to a Secretaries
Madukpe Victor Solomon says
Thanks for this article. Please I want to know, as an accounting undergraduate, how can I join ICAN
Asteria Briggite says
the information have helped me thanks for the information.
Asteria Briggite says
may i know why economists are not accountants.
chinweike says
Economists deal with policy making and variable manipulations, while Accountants deal with information processing and cost savings.
Zita Kings says
sweet site
Dennis Agyekum Arkaah says
the site de be k3k3
Alhassan Nagumsiy says
Thanks very much for your wonderful text in Accounting, the material put there is a source of knowledge build-up for Accounting Students as well as practicing Accountants. Its so educative.
Agollah Brian says
pls help me answering these questions: 1. what are the objectives of: (a) IAS and (b) IFRS
Agollah Brian says
explain why an accountant should use IAS and IFRS. pls help
chinweike says
Hi Agollah,
Just a quick reply to your question. One of the most important reasons why IAS and IFRS is introduced is to reduce the penumbrella areas in accounting. By penumbrella, I mean those grey areas. Also, IFRS is encouraged for the sake of standardization. Also note that boosting investors confidence and opening up access to international fund is another reason why IAS and IFRS is introduced.
I hope this little response helps. I can write a full fledge post on it during the weekend if you still need more information on this. Thanks for stopping over.
Ma than says
I need some points for writting an ans of the question “discuss the importance of accounting in modern banking.”, if possible.
Thnk u 🙂
chinweike says
Hi Than,
Sorry am replying this late. I have been busy lately. Do you still the information? Let me know so that I can prepare a detailed answer for you. Thanks
Samuel says
Thanks so much for this lovely job,more grace sir.
Please sir I want to ask
What are the relevance of accounting to school management?
What are the various reasons for financial planning in a school system?
Samuel says
What are the relevance of accounting to school management?
chinweike says
Hi Samuel, sorry for my late response. I wrote an article on the importance of accounting to school. Here is the link https://www.accountantnextdoor.com/importance-of-accounting-in-schools/
Maheel says
Can u pls explain the importance of accounting to a banker or a banking student
Beatricensiah says
I want ask a question ..please what are the essence of acounting in the word of business
chinweike says
Hi Beatrice,
International addition to all points listed in this article, businesses will simply die off if records of transactions are not properly kept.
Thanks for asking.
Chinweike
joshua says
Can i ask why should the government ministries department and the private sector entities prepare accounts and financial statements
Jeethu Johnson says
it’s a nice one
Jones Nick says
Why is this not on google’s first page? Exactly what I needed. Thanks for sharing