There are multiple transactions that take place during the year therefore, it is important to have a record of those transactions. Financial accounting helps internal and external stakeholders make better business decisions. Without financial accounting, decision-making can have a negative impact on the company’s performance. This is the reason the importance of financial accounting cannot be neglected.
Maintaining Financial Transactions
Every business needs to keep a record of the transactions it makes irrespective of its volume. Accounting uses a double entry system which means there are always two accounting entries for a transaction. A double entry system records both sides of a transaction which have two equal and opposite effects in at least two different accounts.
For example, if you purchase a machine in cash (for Rs.100000), you debit machinery account and credit the bank account.
Fulfilling Tax Obligations
Maintaining books of accounts makes it easier to pay tax. The reason being, all bills, and other transactions are recorded and kept in one place. You do not need to make corrections at the last moment. Thus, an organized Balance Sheet, Cash Flow Statement and Profit and Loss Statement can benefit in planning tax returns.
No comments:
Post a Comment