Accounting is Important in Business Sector

What is the importance of accounting in business? Imagine a world without

language and communication, isn’t it in chaos? What would happen if there is no
balance sheet or statements of financial position to show us the financial condition of
our business? What can we do if there are no income statements that tell us if our
company performs well or not? Accounting is considered the language of business. It is
a service activity, which function is to provide quantitative information, primarily financial
in nature, about economic entities, that is intended to be useful in making economic
decision. It aids business owners and other users to make informed judgment and
better decisions, through the financial information it provides, Abrugar (2011).

According to the American Institute of Certified Public Accountants [AICPA];

“Accounting is the art of recording, classifying and summarizing in a significant manner
and in terms of money, transactions and events, which are, in part at least, of a financial
character and interpreting the result thereof”. American Accounting Association [AAA];
defines accounting as “Accounting refers to the process of identifying, measuring and
communicating economic information to permit informed judgments and decisions by
users of the information”. That supports by A. W. Johnson; “Accounting may be defined
as the collection, compilation and systematic recording of business transactions in
terms of money, the preparation of financial reports, the analysis and interpretation of
these reports and the use of these reports for the information and guidance of
management”.

The accounting information is very important for the management or the decision
making the body of an organization. Management cannot make decision without
reasonable information’s for backing it up. Managers need accurate and timely financial
data to make intelligent decisions, and accountants are the ones who produce this
information. While the accounting process collects the data and presents it in various
types of reports, the accountants help interpret the meanings of the reports and suggest
ways to use these details to solve business problems. It is important as it provides
quantitative information of financial nature to various stakeholders which is intended to
be used in making economic decision. Business accounting help in making a number of
short term and long term business decisions which helps an enterprise to grow as well
as penetrate in market. Also Accounting is very important in business because all
money-related matters will be done through accounting such as business transactions,
tax computations, expenses, etc. Every business or company needs tax services from
the accountants. One of the most difficult tasks in business is in accounting because it
requires an employee to be capable of a lot of data analysis and computation.
Accounting doesn't just a mere computations for the business, but also gives
suggestions on how to manage the business' money, and making sure that it's in the
allotted budget. Without it you can't know whether your company complies with
government policies, and you can't track your business cash flow which is very
important to avoid financial loss as well as to monitor whether the business is
performing well or not and take necessary steps for improvement.

These are the users of the accurate and timely financial information and the information
that they needed. The users of accounting information include: the owners and
investors, management, suppliers, lenders, employees, customers, the government,
and the general public. Owners and investors, stockholders of corporations need
financial information to help them make decisions on what to do with their investments
(shares of stock), i.e. hold, sell, or buy more. Prospective investors need information to
assess the company's potential for success and profitability. In the same way, small
business owners need financial information to determine if the business is profitable and
whether to continue, improve or drop it. Management, in small businesses,
management may include the owners. In huge organizations, however, management is
usually made up of hired professionals who are entrusted with the responsibility of
operating the business or a part of the business. They act as agents of the owners.
The managers, whether owners or hired, regularly face economic decisions – How
much supplies will we purchase? Do we have enough cash? How much did we make
last year? Did we meet our targets? All those, and many other questions and business
decisions, require analysis of accounting information. Lenders, lenders of funds such as
banks and other financial institutions are interested in the company’s ability to pay
liabilities upon maturity (solvency). Trade creditors or suppliers, like lenders, trade
creditors or suppliers are interested in the company’s ability to pay obligations when
they become due. They are nonetheless especially interested in the
company's liquidity – its ability to pay short-term obligations. Government, governing
bodies of the state, especially the tax authorities, are interested in an entity's financial
information for taxation and regulatory purposes. Taxes are computed based on the
results of operations and other tax bases. In general, the state would like to know how
much the taxpayer makes to determine the tax due thereon. Employees, employees are
interested in the company’s profitability and stability. They are after the ability of the
company to pay salaries and provide employee benefits. They may also be interested in
its financial position and performance to assess company expansion possibilities and
career development opportunities. Customers, when there is a long-term involvement or
contract between the company and its customers, the customers become interested in
the company’s ability to continue its existence and maintain stability of operations. This
need is also heightened in cases where the customers depend upon the entity. General
Public, anyone outside the company such as researchers, students, analysts and others
are interested in the financial statements of a company for some valid reason.
The users may be classified into internal and external users. Internal users refer to
managers who use accounting information in making decisions related to the company's
operations. External users, on the other hand, are not involved in the operations of the
company but hold some financial interest. The external users may be classified further
into users with direct financial interest – owners, investors, creditors; and users
with indirect financial interest – government, employees, customers and the others.

From the above we can conclude that accounting not only helps an enterprise to
conduct its day to day activities smoothly but also helps in its future growth. At the same
time financial statements produced by various accounting systems are used by multiple
stakeholders to take economic decisions. Proper reporting and accounting practices
helps in maintaining investors’ confidence and brings economic growth as well.
Accounting is a very important part of business. Without it you can’t know if your
business complies with government policies, and you can’t track your business cash
flow, which is very important to avoid financial loss as well as to monitor whether your
business is performing well or not and take necessary actions for improvement. That’s
why it is often referred to as “Language of Business” it speaks to the current condition of
the business.There are people who needs an accurate, timely and most important a
reliable financial information because the accountant is someone who knows the cost of
everything and the value of nothing. Always remember that behind every good business
is a great accountant. Indeed accounting is an essential part of a business.

New Era University

College of Accountancy
 #9 Central Ave., New Era, Quezon City

ARGUMENTATIVE ESSAY
Accounting is Important in Business Sector

Submitted to
Professor Annabelle Bigornia

Submitted by
Gaspar, Vanessa
MW 2:30-4:00 pm
1 - BSA – 6

Second Semester Academic Year 2018-2019

INTERNET SOURCES
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 EduPristine (2014), Importance of Business Accounting for Enterprises,

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Gartenstein D. (2019), Principles and Importance of Accounting for a Business,

Smallbusiness.Chron.com, Retrieve from: https://smallbusiness.chron.com/principles-
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Abrugar V. (2011), What is the Importance of Accounting in Business, Businesstips.ph,

Retrieve from: https://businesstips.ph/what-is-the-importance-of-accounting-in-
business/

Hinchcliffe G. (2013), W h y A c c o u n t i n g I s I m p o r t a n t F o r B u s i n e s s e s ? ,
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Handiqui K. K. (2011), Introduction to Fundamentals of Accounting, www.kkhsou.in,

Retrieve from: http://www.kkhsou.in/main/management/fundamental_accounting.html

BOOKS SOURCES
Ong F. L. (2016), What is Accounting?, Fundamentals of Accountancy, Business and
Management, C & E Publishing, Inc., 2016, South Triangle, Quezon City

Ballada, W. & S. (2018), Definitions of Accounting, Basic Financial Accounting and

Reporting, Made Easy Publishing Company, 2018, Quezon City