Accounting is the process of systematically identifying, recording, classifying, and summarising of financial transactions related to a business. Accounting is a very important function for almost every business. Without accounting, it is very hard to run a business.
Table of Contents (Advantages and Disadvantages of Accounting)
Advantages of Accounting
In today’s world, accounting is one of the most important parts of the business. That business maybe in small scale business or large scale business, accounting is play vital role of all type of business. Without accounting, management faces so many difficulties like- all business transactions are hard to remember or hard to record that, transactions in manually. There are so many merits/ advantages of accounting that a business can get.
Provide financial information about business:
In accounting process, day to day all business transactions are recorded, classified and summarized. After that management prepare final accounts. In the help of all these, both the insider of the company as well as out sider of the company can easily get financial information about that company.
Assistance to management:
The information which is gain by the company through accounting, that helps business to make batter decision for future as well as helps to prepare budget for next upcoming year.
Helps in comparative study:
Business makes comparative study in two ways. 1st with the help of accounting, management can compare their current year’s business transactions with their previous year’s business transactions. Another one is, management can compare their business transactions and profit & loss with their competitors business transactions and profit & loss. Both the comparison helps the management to make their business more batter.
Facilitates loans:
Any bank/ financial institutions 1st, see the performance, growth and credit score of a business with the help of accounting and then they decide to grant the loan or not.
Work like evidence:
All the day to day business transactions are recorded in the book of accounts and that recorded data are work like evidence in the time of need.
Tax Compliance:
Through the help of accounting, a company knows how much amount of profit, they earned during that specific period (Financial Year) and in the basis of profit a company have to pay all of his taxes.
Business valuation:
In accounting process, the management prepare accounts like, profit & loss account and balance-sheet. In the help of these accounts, management can easily find out their net profit or net loss of the business as well as, management knows how much amount of assets and liability company holds. With the help of these information, management do valuation of their business.
Disadvantages of Accounting
There are some demerits of accounting are
Accounting is not fully accurate:
All the information of accounting is not fully correct. Example- Calculation of depreciation, calculation of good will, we just assume and put the amount/ data.
Affected by window dressing:
Window dressing means, manipulation/ change of accounting information. Some business organisation wants to show that, their business working in a batter position, that’s why they hide or manipulate some information. So in that case, the result of profit & loss account and balance-sheet are not fair/ true.
Unsuitable for forecasting:
Forecasting means, seeing ahead. In business, the management always do forecasting on the basis of past event, which is not accurate all the time.
Ignores qualitative element:
In accounting only monetary matters are considered. Other things/ elements like- quality, skill of management, intelligency of staff are ignored.
Time consuming:
The whole accounting process takes so much time. Because, 1stly in business, there are so many types of financial transactions like- purchase of raw material, rent paid, electricity paid, worker’s salary paid, sales, etc. so all these transactions need to record systematically and after that management needs to prepare ledger account then, trading account, profit & loss account and finally balance-sheet. So whole accounting process is time consuming..
Cost for implementation:
For some business, implementing and maintaining cost of accounting software is may be expensive, especially for small scale organisations.
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