For every business concern, accounting is so important. Without proper accounting application, no business or organization can run long. Thus, importance of accounting functions are well known to the owner of an organization.
After a specified period, every owner party wants to know the financial condition of organization. For this reason, it is the duty of bookkeeper or accountant to prepare financial statements from the transactions of the organization whether it is a profit or non profit organization. Accounting operates below functions to supply such information to the relevant users of accounting information.
1. Recording Transactions
In business, after occurring any transaction with the date and analyzing debit & credit is recorded into account book. It is recorded into the primary book of accounting named Journal book. This is the first task of book keeper. By this, the accounting cycle starts.
Recorded transactions in journal book are transferred to ledger book by classification with different heading. For this reason, every account balance can be found from the ledger book.
Ledger book is called as the principle book of accounting. On the other hand, from this book, we can prepare financial statements too. Leger books are processed to fix recording of transactions.
3. Trial Balance
Accountant prepares trial balance to analyze mathematical purity by the general ledger accounts. Basically, it is a list of debit and credit accounts balance of all the ledger entries. If the both balances(debit & credit balance) are become similar by number, then there is no error in the accounting books. Because, From trial balance, accounting department makes financial statements.
4. Financial Statement Preparing
Preparing financial statement is the main task of accounting. Basically, all the tasks are done in the accounting cycle to prepare financial statement. That's why it is so important. By the analysis of financial statements, it can be found that how much profits or losses the company trends in this period. Besides, financial conditions of an organization can be found from the financial statements.
5. Analyzing of Financial Information
From financial statement, we get financial information. Analyzing of this financial information is just another important task of the accountant. Financial information analyzing let us to know the different ratios of different concept of business.
6. Financial Information Presentation
Accounting completes all of its tasks in order to supply financial information to its users. For this when all the financial statements are prepared, these are supplied to its internal and external users.
7. Financial Planning
Accounting analyzes financial information of the organization. By those information, management can plan for the future. Thus, accounting helps in financial planning by its functions.
Fixing the cost for a project is called as budget. This is a function of accounting too. Accounting measures such cost in order to help the management.
Accounting functions are to record transactions and operate the business smoothly. Besides this, accounting helps management too.