Why companies need an Accounting?

                              Accounting is necessary for the company because to analyses their business, firm or company is running in profit or loss. In the end of financial year the financial report is presented by the accountant to the management.

In the world, any company which is doing any business they are also maintained account on different basis but the main motto is to prepared /maintained their books in proper way and find out company earned profit or loss during the financial year. First of all we understand the concept of accounting “any give or take from society or person in monetary and non- monetary (credit)” it includes a transaction between them. After that classification and recording process of financial data relating to business operation in an orderly system is called “Book-Keeping”. The transaction between two parties of sale or purchase of goods on credit or cash accounting classified and systematically recorded in particular books (accounts).

                                        Accounting is also known as business Language to communicate all workings of company in financial terms. For example: - Goods sold on credit by Mr. X to Mr. Y of Rs. 100000/- and Mr. X is given a discount of Rs. 1000 /- , then the sales of good amount Rs. 99000/- credit on Mr. Y. Suppose Mr. Y returned some goods as damage of Rs. 9000/- The Mr Y have credit of Rs. 90000 paid to Mr. X.  This is a very Short example to describe the need of accounting in company because any people cannot memorized huge amount of transactions done day to day in company.

 The companies or firms needed accounting to know the following information during the period of business:-

1. How much will be earned the total earnings during the period.

2. What are the expenditures during the period like salaries, wages, electricity, insurance, taxes, telephone etc.

3. Profit or loss earned during the financial year.

4. How much the required capital or its causes of increases or decreases in capital.

5. Natures and value of assets possesses by the business.

6. Natures and amount of liabilities.

7. Suppliers to whom the business has to make payments and the amount in each case.

8. Proper filings of sales tax and income tax returns.

                                             Above mentioned points are the basic needs of company from accounting. There are some many function are which are done by accounting like raising of funds for company by show the financial position or raise the funds from banks as loan or public issues of shares, and also make a comparison between the previous year and current year financial positions on cost, expenses, sales, purchase, net profit /loss.

Though the accounting the company financial position increases the goodwill of company. Goodwill is most important fact for a company because its shows the reputation of company in the market. It is also protect the property of company as maintaining a proper list of assets and liabilities are used at the end of year verification is done.