In a competitive market a modern business has to know about what is going in and what is going out, without this a business is useless. All businesses, whatever their size, need to keep accurate records – particularly about money. The owners want to know what is happening and they have a legal duty to prove that the business is properly run. Businesses need to be constantly aware of the condition of their finances, so that they can try to make adjustments where necessary to keep afloat. Within this essay the various benefits of accounts are described in relation to a modern business.
Initially one of the key points of keeping track of a company’s’ accounts is to find out if you are making profit. Therefore, by assessing the income and expenditure aspects of the accounts, profit can be calculated and this should help you to analyse your business progress, by comparing with previous years accounts.
Accounting can also highlight individual areas of your business so that you can discover what the successful and unsuccessful areas of your business are. These can then be rectified to improve profits.
Accounts can also show the debts the business owes. This may be important as the business needs to know if they are in debt and if so, they can decrease expenditure in other places.
Also managers and owners can see the accounts where they can decrease expenditure. The business may be spending too much money in a certain area and it may not be necessary.
You can also see where you are spending your money and how much you are spending. You may want to increase/decrease the money going in that certain area.
Accounting also shows what financial resources the business has. This can be important when an individual is checking your accounts to make sure they are up to standards.
If the business has credit facilities, then they will need to know which customers owe them money and how much. Some companies let their customers have a couple of month’s credit so this must be checked and kept up to date.
Management can also analyse and evaluate any business decision, they have made that year. For example, if a business may have had to make a major decision, they can analyse whether it was the right choice.
Accounting not only deals with historical records of the business’s financial transactions, it can also be used to plan ahead, to forecast results. Businesses can use their accounts to help them prepare budgets concerning the planning of sales, running expenses and profit, etc.
Benchmarking is when the organisation compares their own accounts with another from a similar industry, possibly a competitor. So when your competitors are doing well, you can see where they have done well. Or even if they are not performing well then you can see their mistakes and make sure you don’t make the same. But this works both ways, as your competitor’s can see yours.
The government needs to make sure that any modern business are fulfilling their tax obligations and that legal requirements are met. The government need to know that the business is not breaking the law and everything is above the board.
In conclusion, therefore I think accounts are extremely important for a modern business to survive. They can be used to see what is going on in your business either to see if you are making profit or used to make budgets for the year coming. As long as they are used properly, accounts can be extremely helpful for all different types of businesses.