In a business organization, the advantages of accounts are enormous. An account is a ledger record of all transactions in a summary form.
Transactions recorded in the journal do not automatically produce any results. Similar transactions are to be recorded under separate headings in chronological order, and they are to be divided according to their type and nature. So that the accounting period’s results are accurate.
Advantages of Accounts
The following are the top 17 advantages of accounts:
1.Permanent Record:
Accounts are important for permanently recording transactions. Through the use of the accounts, transactions are permanently recorded in short form.
2. Determining Cash Balance:
The amount of cash is always known only by keeping accurate accounts. Moreover, misappropriation of cash funds can be prevented by keeping cash accounts.
3. Determining the Number of Debtors or Receivables and Creditors or Accounts Payable:
By keeping the accounts properly, the total debtors or receivables of the business and the number of creditors or accounts payable can be known.
It gives information about the financial status and results of different individuals or organizations.
4. Justify the Mathematical Accuracy of the Accounts:
The mathematical accuracy of the account can be verified by making a trial balance with the debit and credit balances of the ledger.
As a result, it is possible to accurately determine the financial results of the transaction.
5. Documentary Evidence:
Every transaction of the business is permanently written in the book of accounts. And if there is any confusion between different people and parties in the business, it acts as documentary evidence.
6. Comparative Analysis of Accounts:
Accurate maintenance of accounts allows you to compare the previous year’s financial situation to the current year’s financial situation, which aids in the formulation of future plans and budgets.
7. Classification:
It is necessary to classify the accounts of the business organization for the purpose of proper preservation.
This is because classification is done on the basis of homogeneity in order to achieve the goals of an organization.
8. Determining Profit & Loss:
Any person or organization would like to know the profit and loss of his business from time to time.
So if the account is kept properly, the actual profit and loss of the business can be determined.
9. Cost Control:
Necessary and unnecessary expenses for an individual or organization can be easily identified by keeping proper accounts.
It helps to eliminate unnecessary expenses. So accounting helps in controlling costs.
10. Determining the Financial Condition:
The first and foremost task of an individual or organization is to be aware of the financial condition of the business.
So every business organization keeps proper accounts so that it can know about the financial condition of the business at the end of the year or at any time.
11. Helping in Tax Assessment:
Tax calculation is easier if the accounts are kept properly. In addition, the importance of keeping accounts is essential in determining income tax, sales tax, value-added tax, production tax, etc.
12. Assistance in Preparation of Final Accounts:
Trial Balances, worksheets, income statements, and balance sheets are prepared with the balances of accounts.
And by preparing the final account, the financial results and financial condition of the organization can be known accurately.
13. Prevention of Fraud:
Debit-credit analysis is performed as soon as the transaction occurs, and the accounts are recorded in chronological order so that fraud can be easily prevented.
14. Benefits for Lenders:
Lenders get various benefits through accounts. The amount of loan and interest is easily known as the lender’s loan account and interest account are kept separately.
15. Benefits for Owners:
Through account keeping, the owner’s capital and withdrawal accounts are kept separate. As a result, determining how much money the owner has raised and invested as capital during the current account is easy.
16. Benefits for the Investors:
Different individuals and organizations invest the money of the respective organization. The interest they get on that investment is shown through individual accounts.
As a result, investors can easily know their interest and principal amount.
17. Assistance in Management:
The business’s future planning, policymaking, and other activities depend heavily on maintained accounts. This makes management activities easier to manage.
At the end of the above discussion, it can be said that the necessary information about the income-expenditure, debts, property, and ownership of any person or organization as well as the results of all their activities and financial status can be known through accounts.
So we can say that the advantages to accounts are immense.
You can also read:
- What is an account? Features, objectives, classification, and Format of Accounts.
- Short Questions and Answers-Accounts.
- Everything about balancing of accounts.
