Preparing accounts is useful for the whole company. It helps to verify each transaction in any situation. So accounting is useful and helpful to all employees and owners who work for the firm.
The users of accounting are mainly classified into two categories
1. Internal Users: Internal users are inside the business of the entity. Example: managers, owners, directors, CEO, CFO etc.
2. External Users: These are outside the affairs of the entity. Example: Creditors. Government, Shareholders etc.
So, accounting is useful for all these users and not just for owners.
Next question that comes to mind is, whether accounting is only for large organizations and not for small businesses.Poor financial management is one of the primary reasons for small business failure especially in the first year of the business. Since small businesses have a limited budget and other resources, accounting plays a crucial role in providing information that helps businesses in its growth and development.
Accounting provides vital information regarding cost and earnings, profit and loss, liabilities and assets for decision making, planning and controlling processes within a business. The main objective of accounting is to record financial transactions in the books of accounts to identify, measure and communicate economic information. Moreover, tax reporting agencies require you to keep books at a minimum level that tracks income and expenditure.
Main objectives of the accounting system are:
- Recording transactions
- Budget and planning
- Decision making
- Business performance
- Financial position
- Liquidity
- Financing
- Control
- Legal requirements