Accounting can be defined as a language in business that communicates the financial information of a business to the parties that are concerned. It scientifically records business transactions on a monetary basis, and in a set of books known as the financial statement.
Cash plays a vital role in accounting. One party pays the money and the other party receives it. Even in the transactions that do not involve cash, it will be paid or received in the future.
The information that accounting provides is classified and summarized in the form of a financial statement. Trading account and profit and loss account are examples of a financial statement that are prepared to show profits earned and losses incurred during a particular time.
Accounting is historical since it maintains a correct record of financial statements that have been recorded, classified, summarized, analyzed, and interpreted. It plays a major role in managerial functions since it maximizes operational efficiency. Accounting helps in decision making since it plans for future activities and compares actual results with the predetermined standards by controlling day-to-day operations.
Accounting plays a role in legal functions in ensuring that it satisfies the legal requirement of the Accounting Standard Board, by conducting audits that ensure compliance of standards. Another function of accounting is communication. It communicates information to the users such as the management, shareholders, or owners of the company, government, investors, consumers, and employees.
Accountability cannot be attained without accounting and that is why accounting is important to several people starting from the owners and stakeholders. It provides information on how their capital is being used properly or if the business is in a position to provide returns on their investment. The management also benefits from the financial accounting since it shows if the business is profit-making or not.