The business environment today is very different to that of the business environment 20 or 30 years ago. The changes are very clear and have been most advantageous to the business world. Technology has helped the business world reach various operations and functions with ease that was not even thought about a decade or two back. With all these changes, the role of accounting in the business world remains a constant. Although procedures and methods have undergone many changes, the purpose of accounting still remains the same. It is still used by businesses to measure the company’s financial performance and it is still considered deeply in various business decisions.
Every business, be it a small or large, has one goal in mind, and this is to make a profit. Accounting enables business owners to keep a track of the financial information of the business. It enables business owners to record, report and analyze the information. Accounting deals with almost every aspect of the business. For example, it provides the business information on the income of the business, the cost of goods sold, the expenses, assets and liabilities etc. All businesses rely greatly on the information gleaned from accounting to understand how money was spent within the business. Accounting enables the business to understand whether it is going into debt or whether it is making a profit. With a simple glance at financial statements, which are the result of accounting, the business can decide if this is so.
Every company tries to compare their company with the industry standard. Accounting enables the business to do this. Financial ratio analysis is often used by business owners to assess the financial performance. It is a benchmark to assess how a business is doing, and provides the business with an understanding of when improvements are necessary. If a business wishes to make a comparison of their company with another in the business industry, the business will have to use these ratios to do so. If the financial ratio is lower than the industry standard, the business will have to take measures to improve its operations.
Accounting in the business world is vital for small businesses. The information obtained through accounting enables the small business owners to obtain bank loans and, if needed, investor financing. Small businesses need the capital to start the business. Often, pro forma financial statements are prepared and provided to banks and investors so that they are able to understand the expected financial return of the business. Financial assistance may be possible, for many small business owners, if the expected financial return is positive. Accounting, therefore, provides, would be investors a track record of the accounting information.
Accounting has made a significant impact on the business world, and it has grown exponentially in the past years. This growth can be attributed to a great number of new businesses, increasing government regulations, and complex financial situations. Whatever the reasons for the growth of accounting and its role in business world, it can be safely surmised that accounting has made a tremendous impact on the business world.