What are the functions of accounting?

Do you realize that any company’s operational efficiency can be enhanced by as much as 30% if they practiced effective accounting? This figure indicates how significant accounting is in the business world. 

For instance, it forms the basis of financial management by ensuring transparency, compliance, and informed decision making. In this piece, we delve into the main roles of accounting, pinpointing how they contribute to the achievements and sustainability of enterprises.

Also read: Branches of accounting: Purpose and types

What is accounting?

Accounting in an organization consists of an organized system of recording, analyzing, summarizing and reporting all financial transactions. The function of accounting is to provide the company stakeholders with information required for making decisions concerning their future activities and enabling them to make informed decisions.

Functions of accounting

The following are some major functions of accounting that guarantee an entity’s financial survival:

Financial management

It involves a thorough supervision of all financial activities in an organization to ensure that resources are effectively utilized. The roles entail:

1. Budgeting and forecasting: Preparation of financial plans guiding expenditure and spending patterns within an organization.

2. Cash flow management: Monitoring money inflows while checking outflows so as to maintain an entity’s liquidity position.

3. Financial reporting: This is the function of accounting that involves records showing how well or badly off a company is doing financially.

In so doing, entities are able to meet the set objectives while keeping solvent over time through proper financial management practices.

Cost management

This is about managing costs in order to cut business expenses and thus increase profits. This function involves:

1. Cost analysis: Monitoring expenditures at a detailed level to identify cost-saving opportunities.

2. Budgetary control: Ensuring that the level of spending is consistent with the organization’s financial plan.

3. Variance analysis: Contrasting actual expenditure with the budgeted amount to determine differences between them. With strong cost management strategies, businesses can operate more effectively and enhance their bottom lines.

Business decision-making

Accounting provides critical data supporting strategic business decisions. This includes:

1. Financial analysis: Evaluating investment decisions using the information obtained from financial statements.

2. Performance metrics: Determining the company’s operational efficiency through various indicators. This is one of the major accounting functions.

3. Risk assessment: Identifying financial risks and finding ways to mitigate them.

Through accurate accounting information, management makes informed decisions that foster growth and competition.

Taxation and compliance

Being a basic function of accounting, adherence to tax laws is very crucial. Responsibilities include:

1. Tax planning: Strategizing on ways to reduce liability within legal frameworks.

2. Tax filing: Submitting correct returns on time.

3. Regulatory compliance: Keeping records and conducting operations that meet the stipulated statutory requirements.

Proper management of taxation and compliance helps organizations avoid legal penalties and fosters trust with stakeholders.

Maintaining transparency

For building credibility and trust, there has to be transparency in financial reporting. Adopting reporting standards may involve frameworks like IFRS or GAAP. Conducting audits helps in ensuring accuracy through regular internal and external reviews. Forensic accounting aids in detecting and preventing fraud. Transparent accounting practices aim to enable stakeholders to make informed decisions and uphold the organization’s reputation.

Risk management

For an organization’s resilience, it must consider identifying and mitigating financial risks. Risk assessment should be done regularly, especially when new threats emerge. Control measures should be put in place immediately after this process is completed. Effective risk management is key to steering companies through uncertainty, thus ensuring their financial well-being.

Online BBA in finance & accounting from Manipal University Jaipur

In the field of accounting, a Bachelor of Business Administration (BBA) degree from Manipal University Jaipur can be an outstanding milestone for those who aspire to pursue this profession. Through Online Manipal’s platform, you get the chance to pursue this UGC-entitled online BBA in Finance & Accounting. 

This entails key areas like Financial Management, Corporate Finance, Taxation and Auditing among others. With these skills, they can analyze financial information, manage resources efficiently and make informed decisions about different businesses across various industries. The flexibility of online study allows individuals to study while engaging in other duties, thus providing high-quality education for a wide range of people.

The bottom line

To ensure the survival as well as growth of an organization, it is essential to understand all aspects of accounting functions performed within that organization. In other words, for companies to be financially viable, each department has its own specific duties ranging from fund control to disaster management.

To build an exciting profession in this evolving sector, look for programs like MUJ’s BBA in Finance & Accounting. Check out what Online Manipal has on offer and step into an exciting career in accounting.

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