Top 12 advantages of accounting

Top 12 Advantages of Accounting accountingrevenue.com/top-12-advantages-of-accounting.html Sanjoy19

July 18, 2020

There are several benefits of Accounting. Accounting is now required in every case and accounting provides us with benefits. Such as, advantages of accounting, i.decision making, ii. replaces memory, iii. facilities loans.

Learning Objectives: Advantages of Accounting After studying this unit,you will be able to: The advantages of accounting may be described as the viewpoint :

A.Advantages of accounting from the viewpoint of the owners and the management : (i) Regular assessment of financial operation at the end of each accounting period. (ii) Disclosure of financial results to interested parties. (iii) Making comparative analysis among financial results of different period. (iv) Locating areas of weakness and success. (v) Arriving at correct policy and decision making.

B.Advantages of accounting from the viewpoint of Employees: (i) Knowledge of annual financial results that helps to make appropriate claim for bonus, commission, etc. (ii) Ascertaining their job securities.

C. Advantages of accounting From the viewpoint of Suppliers and Creditors: (i) Knowledge of profitability of the concern against which they have claims. (ii) knowledge of the solvency of the concern. (iii) Arriving at correct decisions regarding discontinuing or renewing agreements with the concern.

D. Accounting advantages From the viewpoint of Investors: 1/5

(i) Knowledge of the financial operations of the concern and ascertainment of security of investments made there. (ii) Knowledge of the end result and taking appropriate decisions regarding investing further or withdrawing the investment already made. (iii) Regular knowledge of financial operations of a concern. (iv)Taking appropriate decisions regarding fiscal measures, taxation, etc.

Advantages of Accounting : i. Financial Information about Business. ii. Assistance to management. iii. Replaces memory. iv. Facilitates Comparative study. v. Facilitates settlement of tax and Legal formalities. vi. Facilitates Loans. vii. Evidence in Court. viii. Facilitates Sale of Business. ix. Assistance in the Event of Insolvency. x. Helpful in Partnership Accounts. xi. Managerial decision making. xii. Evaluating the State of Affairs.

Advantages of accounting can be depicted in the following chart as:

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top 12 advantages of accounting

Advantages of accounting are details discussed.

1.Financial Information about Business: Financial performance during the accounting period,i.e, profit and loss also the financial position at the end of the accounting period is known through accounting.

Accounting provides meaningful information of financial activities of the business to internal and external stakeholders in the form of financial statements.

The financial statement components Profits and Loss Account, Balance Sheet, and Cash Flow Statement Provide information on the state of affairs of the business, financial positions of the business, and source of inflow outflow of cash respectively.

2.Assistance to management: The management makes business plans, takes decisions, and exercises control over affairs on the basis of accounting information.

Accounting supplies information useful in judging the management’s ability to utilize enterprise resources effectively in achieving primary objective enterprise goals.

3.Replaces memory: 3/5

A systematic and timely recording of transactions replaces the necessity to remember the transactions. The accounting record provides the necessary information.

4. Facilitates Comparative study: A systematic record enables a business to compare one year’s result with those of another year and locate significant factors leading to the change, if any. Accounting facilitates comparative study of current year’s profit, sales, expenses, etc, with those of the previous years.

5. Facilitates settlement of tax and Legal formalities: A systematic accounting record immensely helps settlement of income tax and GST or Goods and Services Tax liabilities since it is good evidence of the correctness of transactions.

If the accounts are properly maintained, the assessment of taxes is greatly facilitated.

6.Facilitates Loans: Loan is granted by the banks and financial institutions on the basis of growth potential which is supported by the performance. Accounting makes available the information with respect to performance.

7.Evidence in Court: A systematic record of transactions is often accepted by the Courts as good evidence.

8.Facilitates Sale of Business: If some one desires to sell his business, the accounts maintained by him will enable the ascertainment of the proper purchase price.

9.Assistance in the Event of Insolvency: Insolvency proceedings involve explaining many transactions that have taken place in the past. Systematic accounting records assist a great deal in such a situation.

10.Helpful in Partnership Accounts: At the time of admission retirement or death of a partner and dissolution of the firm, accounting record is of vital importance and use. It helps in the settlement of accounting among the partners.

11.Evaluating the State of Affairs: Accounting provides users with factual and interpretive information about transactions and other events that are useful for predicting comparing and evaluating the enterprise’s earning power.

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12.Managerial decision making: Accounting provides useful information to management in assisting the economic decision-making process. The day-to-day operations are compared with some predetermined standard.

The variations of actual operations with pre-determined standards and their analysis is possible only with the help of accounting.

Quick Revision Advantages of Accounting : (i) Making comparative analysis among financial results of different period. (ii) Systematic accounting records assist a great deal. (iii) It helps in the settlement of accounting among the partners. (iv) It system helps regarding the valuation of goodwill, other assets, and liabilities. (v)A proper accounting system not only checks errors and frauds, but also minimize them.

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