Need for accounting

Accounting is the “language” employed to communicate financial information. Such information is sought for a variety of reasons. Owners and prospective owners of a business enterprise need to know about its financial status and its prospects for the future. Bankers and suppliers appraise the financial soundness of a business organization and weigh the risk involved before making loans, or granting credit. Government agencies are concerned with the financial activities of business organizations for purposes of taxations and regulation. Employees are also vitally interested in the stability and the profitability of the organization that employs them.

The managers of business enterprises need a wide range of data about every fact of operations, much of which is made available through accounting. The manager of a small business may be thoroughly familiar with all operating and financial details and hence need relatively little accounting information. As the size of a business unit increase, however, the manager becomes farther and farther removed from direct contact with day-t-day operations. He business, be must be supplied with timely financial information about various aspects of the business. The growth of large business units and of the importance of accounting in such organizations has given rise to the expression that accounting provides the “eyes and ears of management”.

The accountant has the responsibility of keeping track of all monetary transactions that affect the organization of interpreting the information in terms of relative success or failure, and of helping to plan the course of future action.