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Purpose of Accounting: It’s Practical Importance

by admin on August 18, 2015 Comments Off

Accounting, being the language of business is one crucial element in fulfilling a successful entrepreneurial venture. Though modern times have seen a lot of changes in the needs of owners, the very heart of those needs is still accounting. Accounting services Singapore had learned to evolve with the business industry. Those who are still quite unacquainted with accounting must be scratching their heads right now asking, “What use really is accounting for?” Well there are more answers than one.

The ultimate purpose of accounting is to provide financial information to decision makers in order for them to render an informed judgment. This concept is embodied in the following definition by the American Institute of Certified Public Accountants:

“Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions, in making measured choices among alternative courses of actions.”

It is a common misconception to consider accounting as bookkeeping services only. Note the following definition from the American Accounting Association:

“Accounting is the process of identifying, measuring and communicating economic information to permits informed judgment and decision by users in making economic decisions.”

If you are planning to tap accounting services in Singapore from accounting firms or individual professionals, you must first think what you need from them. You cannot just hire them and ask them to provide service for you without telling them what outputs you are expecting from them.

Following are the accounting information accountants can provide to you or your organization:

  1. Results of Operations

The main goal of every business is of course to earn income. You cannot just say you are earning income just because you sold X number of your inventory. Accounting helps you to accurately measure the income you earned during a specified period of time. Perhaps the most common report to measure the results of operations is the income statement.

  1. Financial Position

Accounting can also provide you the details of your assets, your liabilities and your equity in the business. The balance sheet is formulated for this purpose.

  1. Solvency and Liquidity

Companies, whether they are large or they belong to the small and medium enterprise category, must always have enough level of assets to pay off their debts. Accounting helps monitor your level of liquidity and solvency, so as to prevent bankruptcy. It’s easy to get lost in your budgets if you don’t have accounting by your side.

  1. Cash Flows

The most important asset of every business, cash, should always be monitored. Maintaining enough levels of cash is crucial to paying suppliers or purchasing new assets. Cash flow projections are also important when applying for business loans. You must have a ready program on how to pay your creditors.

  1. Other information

Accounting is dynamic. It can be used to provide other information such as share ownership, financial projections and budgets, tax base and others. Some experts say accounting is also an art. Feel free to experiment on figures in order to get your specific needs.

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