Benefits of Implementation a Good Accounting System - Essay Example

IntroductionAccounting is the basic and universal aspect of every business and its importance needs to be emphasized when starting a business. In order to improve and exploit the full potential of a business, accounting practices must be adhered.AccountingAccounting is the process of classifying, analyzing and interpreting financial record of a company/firm. Actually, it involves measuring and processing of financial data and releasing the processed data necessary for decision making.The need for accountingEfficient accounting system is essential for a starting business since it assists in keeping records of all revenues and expenses transactions occurring on a daily basis.

Accounting system requires three financial accounting documents; the balance sheet, which determines financial position of the business, income statement, which shows if the business is making a profit or loss and finally and cash flow statement which shows money inflow and outflow in the business.Business activities are run by money given to the management body by the owners. Therefore, financial statement is useful in monitoring the effectiveness of management. Financial statements also act as a tools used in making assessment.

These statements show how management spent resources allocated to them in the process of reducing the company’s cost and increasing profitability (Kieso and Weygandt 34). It is the work of the accounting department to make such assessments and give a report.Benefits of good accounting systemGood accounting system helps company’s stakeholder to make economically informed decisions. The decisions made are based on the information received after analyzing financial statements. Business decisions are always based on accounting information.

Accounting system is also very important for record keeping. Information collected from numerous sources is received, analyzed and communicated to the prospective users for decision making. Based on accounting details, company records can be used to make monetary policies. Efficient accounting system helps to detect deception by putting in proper internal control mechanism to monitor events (Kieso and Weygandt 47). Effective and efficient tracking of internal events can be achieved by having good accounting information system in place.

It is easy to secure a loan from various financial institutions when acceptable financial statements are presented. Banks and other financial institutions use accounting documents as a tool of communication in making assessments about the risks associated with the business. In addition, good accounting system creates a positive reputation for the company. The potential clients and customers base their judgment on company’s accounting system.ConclusionAccounting is the true language of any business activity.

It is a measurement that gives results on vital information needed by many users including creditors, investors, government and management for decision making.  Top of FormWork citedBottom of FormKieso, Donald and Weygandt, Jerry. Intermediate Accounting. New York: Wiley, 1998. Print.