Name: Wallaya Bilal ERP: 19342

The role of accounting in managing business

To understand the role of accounting in business we need to first understand what accounting is. Accounting is the
process of recording and presenting financial transactions and information. The accounting process comprise of
identifying, recording and communicating an economic event. There are many types of accounting such as
Financial accounting, Public accounting, Government accounting, Management accounting and many more. The
idea of accounting is as old as money itself. From the time of ancient civilizations to nowadays accounting has
been playing an important role in managing businesses all around the world. Accounting is also called the
language of business.

Why? Because it communicates all the important information of a business to the owners, investors, managers, and
creditors. A business can’t be run if the ones that mange it don’t have accurate financial information. It is
important to track and record business activities so that future plans about the firms or organizations could be
made. The accounting process collects the data and presents it in various types of documents and the accountants
help interpret the meanings of these documents and reports, they suggest ways to use these details to solve business
problems and come up with strategies to help grow the business. Accounting preforms a vital role in operating a
business because it helps keep track of revenue and expenditures, ensure statutory compliance, and provide
investors, management, and government with quantitative financial information which is used in making business
decisions. Through accounting every single penny that is spent or earned can be tracked and report, this way the
owner has full information about all the profit and lose his business makes. Tools like the income statement,
balance sheet and cash flow statement helps the accountants keep a check of everything.

Accounting helps in gagging the performance of your business. The financial statements show the results of
operations along with financial position of your business. In other words, they help you understand what’s going
on with your business financially. Up to date records not only help you keep track of expenses, profit, lose and
possible debt, but it also helps you compare your current data with the accounting history and which in turn helps
you plan your budget appropriately. This is very important as budgeting and future projections can make or break a
business. Furthermore, a proper accounting process with help keep your business out of any trouble relating legal
issues. Laws and rules might be different country to county, but a proper accounting process will ensure that
liabilities such as government tax, sales tax, income tax, and pension and more like these are handled
appropriately. Also, a proper accounting function helps investors know where and when to invest money and when
to withdraw money. Furthermore, the more your business grows, the harder it is to keep a track of money. That
makes it easier for unethical employee to steal from you, particularly if they has access to your business accounts.
But with the help of proper accounting reports one can spot warning signs that something's gone wrong, for
example an unknown withdrawals or unaccounted paychecks. Accountants can also help you come up with
policies that reduce the likelihood of fraud.

Companies also use accounting to determine the cost-effective way. Managers need to know how much money
would be spent to make a certain product so that according to the cost they can come up with pricing strategies that
would lead the company to make profit. With these numbers in mind, management can watch over production
costs on a weekly basis to make sure the costs of production do not exceed the company standards. If accounting
reports show a discrepancy above the goal cost of manufacturing, then management knows to step in, find the
cause of the problem and find ways to solve it. Accounting reports also aid in coming with “what if” strategies.
For example, what would happen if an organization spends more on advertisement? Would it need to cut down on
its other costs? Would its profits increase? An accounting fuction and projection would help refine the results of
this decision and determine if that strategy would be a beneficial to the organization. Having a good grip on the
hiring process is another thing that a good accounting process makes much easier for companies. An accountant
has the information regrading how many new employees the company can afford, or does it have to cut down some
employees to reach break-even point. Also, for both small and large business investors are extremely important.
Investors only want a profit and that is why they won’t put their money in companies with unclear accounting
information. Accountant can turn the basic facts and numbers on the journal of a company into an income
statement, a balance sheet and cash flow statement which enables invertors and other outsiders to sum up and
understand your finances at a glance. If your company is a good investment, hard figures in the accounting reports
would do more to convince the investors than any amount of sweet words. Accounting function also helps
companies keep a track of their shares and how much they have to pay each stockholder.

To sum it all up accounting in necessary in every step of a business. From basic weekly plans to coming up with
the whole year budgeting, accounting is present in each step of the way. Accounting reports, both managerial and
financial, are essential to maximize the ability any company or organization. There is no substitute. Not having
correct and timely information about how effectively or poorly a business is running is a recipe for disaster. So, to
run a proper business one should hire well informed accountants and listen to their advice on step of the way.