January 29, 2022

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10 Ultimate significance of Accounting and Bookkeeping

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So far, the definition of bookkeeping and accounting has been examined. Also, the differences between both has been discussed. But why should you be concerned with this subject of business? In this tutorial, let’s know the top ten ultimate significance or importance of bookkeeping and accounting.

Top 10 Importance of bookkeeping and accounting

Here are the top 10 significance of bookkeeping and accounting

Understand your Income: With a regular financial record in the business, it is easier to understand the business incomes and other revenues. Knowing the amount of income earned per month is of paramount importance. You can easily state the income you earned on average or each month to an investor. You can as well proposed a higher income for the next accounting period. Read on here:

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Understanding the business expenses: If every accounting records are kept, it will be easier to know and track all expenses of the organization. Knowing how money is spent is of utmost importance to any business. This will help the owners to know if money is spent recklessly and what to do to reduce superfluous spending.

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Making Budgets: Budgets usually arisen from previously available accounting data. A firm that does not keep regular records of transactions will not know how to project a budget for the next financial period. This is why adequate bookkeeping is important to the firm.

Calculate taxes: Without regular bookkeeping records, it is nearly impossible to compute tax returns for a firm. Also, if the taxman finds you wanting, auditing your business financial records may be totally impossible and will result in using estimates to predicts profits that will be taxed. Inadequate records may affect the payment of value-added tax. But may not affect PAYE.

Ascertainment of Profit: Every business is established to earn profit. Without the capacity of a firm to earn a profit then there is no need to start a business in the first instance.

Avert stealing: A good accounting model can help a business avoid stealing by staff. And of course, if the actual act of stealing is done, it can be traced to the offender. Furthermore, a good bookkeeping record system will help avoid collisions by staff to defraud the business.

Give an analysis of Debtors and Creditors: One of the ultimate significance of bookkeeping and accounting is its ability to provide data to analyze debtors and creditors in a business. This avoids guessing the number of debtors and creditors. In addition, it assists in the knowledge of when each of the debt is due and how to work towards receiving the payment of such debts from debtors or to pay off creditors.

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Computing Product Price: One of the biggest problems of small businesses is the computation of product prices. Bookkeeping and accounting have targeted ways of solving these issues. A branch of accounting that solved this issue is costing or cost accounting.

Ascertain the amount of Physical Assets: The physical assets of a firm are what it uses to generate revenue. Proper record-keeping of these data does not merely help know the amount in terms of money but also the physical quantities.

Pitching with Investors: As a result of the benefits of growing into a large scale company, many small business owner wants to increase in size. As a result, they may need to pitch or meet with potential investors. An important part of a business the investor may be interested in is the financial statements. These reports are usually made available through good bookkeeping and accounting information.

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Next, the users of accounting information would be discussed.

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