Uses of Accounting

>> September 30, 2009


Accounting plays important role for correct and satisfied operating of any organization. As a matter of fact, the development of any business is only possible, if we record all business transactions with correct method and analyze them. There are following main uses of Accounting:-

1. Avoidance of the limitation of memorizing power:-


Businessman can not remember all business transactions due to the limitation of human memory. Accounting is helpful for recording all business transaction and when businessman checks the record, he can easily remember it and use it for his business purposes.


2. Compliance of Statutory provisions:-
From accounting point of view, recording of business transaction is compulsory. Hereby, accounting helps to fulfill all statutory provisions. In India, it is compulsory to record of all cash, bank and purchase and sale transaction for joint stock companies.


3. Ascertainment of profit and loss of the business:-

Any business concern is established for the motive of earning profit. Net profit or loss is pure result of business. For correct calculation of business profit, it is necessary to record correctly by adopting the principles of accounting.

4. Ascertainment of financial position of the business:-

At specific date, company finds the knowledge of his assets and liabilities from financial statement. Assets means all sources of business and liabilities means all payable amounts of business. Business can calculate correct financial position, if businessman records all assets and liabilities in accounting.

5. Assessment of Tax:-

Nowadays, a businessman has to pay many taxes. For example income tax, sale tax, property tax , excise duty , import duty and custom duty etc. Its correct estimation is only possible, if businessman record correctly all his income, production and sale with the help of accounting. If businessman does not keep his record properly, then Assessing officer calculates amount of tax with his own estimation.


6. Knowledge of Debtors and Creditors:-

With accounting, businessman can easily find what amount is due from his debtors and what amount is payable to his creditors. If he maintains the accounting records properly.

7. Determination of sale price of business:-
If businessman wants to sell his active business to other party , then the total sale value of business can easily determine, if businessman records all investments in business.

8. Evidence in the court of law:-

If any disputes are presented between two parties in court. Then books of accounts can show as proofs, court accepts these records as evidence of transaction.


9. Assistance in taking managerial decisions:-

Accounting is helpful for many managerial decisions like calculation the price of goods and services , calculating the product mix and sale mix , purchase decisions , different uses of plants , determination of the productivity of different sources of productions , continue or close of business decisions , replacement of machinery decisions , decision regarding accepting of any specific order , decision regarding tenders etc.

10. Development of nation :-

Nation can also develop with the help of accounting, if all the businessman records correctly. With this, the can not save black money and with huge amount of tax, Govt. can utilize these funds for development programmes of nation. After this development of nation is possible. Read also the Accounting facts of other countries





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