Roles Of Accounting In Business Analysis

5. Interpreting

Interpretation is an important feature in accounting. Interpretation of accounting statements helps to know whether the position of profitability is good or bad. The interpretation helps interested parties or we can estimate business’s performance.

6. Communicating

This is the final and most important feature of accounting because it relays summarized, analysed and interpreted information to end user and stakeholders which enables them make rational decisions.

2.1.5 Roles of Accounting in Business organizations

The following are the purposes of accounting in an organization:

1. It keeps systematic record of business transactions: Accounting’s main objective in a business organization is to keep a complete record of business

The result of the operation could be a profit earned or loss suffered. A Trading and Profit & Loss Account of the business is prepared at the end of each accounting period to verify if the company made a profit or loss. In the profit and loss account, the revenue of the business is compared with the expenses incurred.

4. It meets legal requirements

In many countries, companies are required to release their financial account statements for the purpose of tax allocation. Accounting helps fill that role by preparing periodic Balance sheets of business organizations.

5. To ascertain the financial position of the business

The financial position of the business is verified by preparing a statement called Balance Sheet. In this statement, the values of all the assets and liabilities of the business are shown. For a businessman, the mere verifying of the profit or loss of a business is never adequate; he must also know the financial health of the business. Therefore after preparing the Profit & Loss Account a statement called ‘Balance Sheet’ is prepared which shows the assets and their values on the one hand and the liabilities and capital on the