The word accounting is a ubiquitous word that we often hear in our daily life. Before diving into other aspects of accounting and why accounting is essential, let’s understand what it is. In layman’s terms, “accounting is the process of recording, summarizing, analyzing and recording the financial transactions of enterprises.” Accounting is one of the most critical functions of any business.
It is often referred to as “the language of business.” The origins of accounting can be traced back to ancient civilizations and have evolved over the years. Accounting can be divided into different fields, such as financial and managerial accounting. Both financial accounting services and managerial accounting are part of business accounting. Financial accounting focuses on preparing statutory reports, while managerial accounting focuses on reporting information for management’s internal use. Let’s discuss the importance of business accounting firms in Dubai.
The importance of business accounting
Accounting is a service activity. This is important because it provides quantitative information of a financial nature to various stakeholders and is intended to be used to make economic decisions. Plus, these stakeholders include investors, management, government, suppliers, financiers, regulators, etc. However, business accounting helps make short-term and long-term business decisions and allows organizations to grow and penetrate markets. The three primary data generated by the business accounting system are as follows:
Income Statement (Profit and Loss Statement)-
The income statement shows a business’s net income/net loss during a specific accounting period.
Statement of Financial Position or Balance Sheet
A balance sheet clearly shows a firm’s financial position as of a specific date. The closing balance of each asset and liability is reflected in the balance sheet. However, the excess of assets over liabilities is capital.
Cash Flow Statement
The cash flow statement shows how changes to the balance sheet and income statement affect cash and cash equivalents. It mainly reflects the cash inflow and outflow between the organization’s operating, investment, and financial activities.
When these three statements are combined, they make up the financial statements. Therefore, all stakeholders need financial information.
The importance of business accounting
In today’s dynamic and complex business environment, keeping our accounting records clear and up to date is essential. In addition, proper accounting is vital to any organization due to the following reasons:
Helps assess business performance
As noted above, accounting records reflect the operations results and the financial position statement. In addition, ratios for various budgets and profit and loss accounts are calculated, which helps users of financial statements to investigate the performance of an entity. For example, asset-liability ratio, current ratio, turnover ratio, etc. In addition, we can also explore the differences between the previous period’s accounting data, the current period’s accounting data, and the budget data.
Help manage and control cash flow.
A business’s working capital and cash requirements can be adequately handled with a proper accounting system.
Helping businesses comply with the law
Proper business accounting ensures that our obligations are recorded promptly and must be paid within the stipulated schedule. This includes provident fund, superannuation, value-added, sales, and income tax. In addition, timely payment of debts helps companies comply with the law.
Help with budgeting and future forecasting.
Accounting data helps organizations prepare budgets and forecast future periods. Business trends are predicted based on historical data generated by accounting systems.
Assistance in filing financial statements with regulators and stock exchanges and filing tax returns –
Companies must file financial statements with the ROC. For listed entities, the same must also be offered on the stock exchange. In addition, financial statements and other financial information are required for indirect and direct tax reporting.
Accounting systems provide many customized qualitative and quantitative reports for day-to-day business activities.
From the above, accounting is essential for any organization, whether public or private, for-profit or not-for-profit, government or private.
In a nutshell, account management is critical to growing a business. As a result, many successful firms prefer to hire account managers with experience managing various accounts. In addition, organizations with an accounting system in Dubai can easily keep their financial records, including expenses, gross margins, debits, etc., allowing you to streamline your finances and tasks.
Now that you know the significance of an accounting firm in Dubai, it’s time to understand what’s happening in your business in real-time and move forward accordingly. However, accounting not only helps a company to run its daily activities smoothly but also helps in its future growth. At the same time, financial data produced by different accounting systems are used by many stakeholders to make economic decisions. Therefore, proper accounting and reporting practices help maintain investor confidence and promote economic growth.