#What roles do accounting play in a business?

If you think accounting is just about crunching numbers and filling out tax forms, you are missing out on the big picture. Accounting is much more than that. It is a vital function that helps businesses track their income and expenses, evaluate their performance, plan for the future, comply with laws and regulations, and make informed decisions.

In this blog post, I will explain some of the key roles that accounting plays in a business and why it is important for every business owner to understand them.

#Branches or fields

Accounting can be divided into several branches or fields depending on the purpose and scope of the information. Some of the common branches are:

• Financial accounting: This branch prepares and presents financial statements that comply with generally accepted accounting principles (GAAP) or other relevant standards. Financial accounting provides information to external users such as shareholders, lenders, customers, and regulators. 

• Management accounting: This branch focuses on providing information to internal users such as managers, directors, and employees. Management accounting helps with planning, decision-making, controlling, and evaluating an organization's performance. Management accounting may use different methods or techniques such as budgeting, variance analysis, cost-volume-profit analysis, and balanced scorecard. 

• Tax accounting: This branch focuses on complying with tax laws and regulations that affect an entity's income or expenses. Tax accounting involves calculating taxable income or loss, tax liability or refund, tax credits or deductions, and filing tax returns. Tax accounting may differ from financial accounting due to different rules or treatments for certain items. 

• Accounting information systems: This branch focuses on designing, developing, implementing, and maintaining computerized systems that collect, process, and store accounting data and generate accounting reports or documents. Accounting information systems use various software applications, hardware devices, networks, and databases to support accounting functions and activities. 

(Iwuozor, 2023)

#The roles of accounting

## Evaluates Business Performance

One of the main roles of accounting is to measure and report how well a business is doing financially. Accounting provides various reports, such as income statements, balance sheets, cash flow statements, and budgets, that show a business's revenues, expenses, assets, liabilities, and cash flows.

These reports help business owners and managers to assess how profitable and efficient their business is, identify strengths and weaknesses, monitor trends and patterns, compare actual results with expected results, and set goals and benchmarks for improvement.

Accounting also helps businesses to communicate their financial performance to external stakeholders and stakeholders use accounting information to evaluate the financial health and viability of a business. (Montiel, 2014)

## Creates Budget Projections

Another role of accounting is to help businesses plan for the future by creating budget projections. It helps companies to allocate resources wisely, anticipate cash flow needs, manage risks, and evaluate different scenarios. This helps them to identify any deviations or variances from their plans, analyze the causes of these deviations, and take corrective actions if needed. (Montiel, 2014)

## Maintains Financial Statements

A third role of accounting is to maintain accurate and reliable financial statements for a business. Financial statements are formal records that summarize the financial activities and position of a business at a specific point in time or over a period of time.

## Ensures Statutory Compliance

A fourth role of accounting is to ensure that a business follows all the rules and regulations that apply to its industry or location. These rules and regulations may include accounting standards, tax laws, and auditing requirements. For example, the International Financial Reporting Standards (IFRS), the Internal Revenue Service (IRS), Certified Public Accountants (CPAs),...

As you can see from this blog post, accountants play many important roles in a business. I hope it can be of help to you. Thank you for your support, your contributions are the driving force for my development. (Garg)

References:

Garg, M.C. (no date) FINANCIAL ACCOUNTING : MEANING, NATURE AND ROLE OF ACCOUNTING, Accounting for Managers. Available at: https://www.ddegjust.ac.in/studymaterial/mba/cp-104.pdf 

Iwuozor, J. (2023) What is accounting? the basics of accounting, Forbes. Forbes Magazine. Available at: https://www.forbes.com/advisor/business/what-is-accounting/ 

Montiel, C. (2014) The roles of accounting in organizations and Society, Academia.edu. Available at: https://www.academia.edu/8736040/THE_ROLES_OF_ACCOUNTING_IN_ORGANIZATIONS_AND_SOCIETY