Skip to content

Advantages of Accounting

Advantages of Accounting

Maintaining the accounts of financial transactions according to the golden rules of accounting gives several advantages.

  1. Maintenance of Business Records: It records all the financial transactions about the respective year systematically in the books of accounts. Management can’t remember every transaction for a long time due to its size and complexities.
  2. Preparation of Financial Statements: Financial statements like Trading and profit and loss account, Balance Sheets can be prepared easily if there is a proper recording of transactions. Proper recording of all the financial transactions is very important for the preparation of the financial statements of the entity.
  3. Comparison of Financial Results: Accounting done by following the golden rules will make it easy to compare one year’s financial results against another year. Analysis of year-on-year financial results becomes easier and more trustworthy.
  4. Corporate Decision Making: An accounting process based on the three golden accounting rules makes the financial results trustworthy and valuable in senior management and leadership’s decision-making process.
  5. Evidence in Legal Matters: Business matters need to be recorded systematically and filed away in an organized fashion for quick reference in legal issues.
  6. Regulatory Compliance: For businesses, accounting is of paramount importance in helping compliance with regulatory authorities. Without the basic foundation laid down by the three golden accounting rules, it would be difficult to achieve regulatory compliance.
  7. Helps in Taxation Matters: Due to incorrect accounting practices, the shortfall in taxes could attract heavy penalties from government authorities, negatively impacting image and brand value.
  8. Valuation of Business: A robust accounting process helps in proper business valuation, helping to get more investment and expand the business.
  9. Budgeting and Future Projections: A good budget based on proper accounting practices can be a strong foundation for any business to be scaled up. Future projections are more accurate with a robust accounting practice in place.

Disadvantages of Accounting

  1. Records in Terms of Money: Since the transactions that are measurable in terms of money can only be recorded, non-financial transactions are not given effect in the book of accounts.
  2. Records at the Original Cost: The balance sheet may not disclose the exact financial status of the company due to the difference between the original cost and replacement cost due to the various aspects.
  3. Manipulation of Accounts: The accountant may manipulate the profits of the business.
  4. Money as a Measurement Unit Changes in Value: Since the value of money keeps changing, the accounting information will not show the true economic position of the company.

Advantages-of-Accounting

Leave a Reply

Your email address will not be published.