Benefit from Accounting

ACCOUNTING REPLACES HUMAN MEMORY

ACCOUNTING HELPS IN KNOWING PROFIT

ACCOUNTING HELPS IN KNOWING FINANCIAL POSITION OF ORGANISATION

ACCOUNTING HELPS IN KNOWING LIST OF CREDITORS AND DEBTORS
ACCOUNTING HELPS IN PAYING TAXES

ACCOUNTING HELPS IN RAISING MORE FUNDS BY SUPPLYING INFORMATION TO INVESTORS AND CREDITORS

ACCOUNTING HELPS IN PLANNING FOR EXPANSION

ACCOUNTING HELPS IN GETTING BANK LOANS



Perhaps the primary benefit of principles-based accounting rests in its broad guidelines that can be applied to numerous situations. Broad principles avoid the pitfalls associated with precise requirements that allow contracts to be written specifically to manipulate their intent. A 1981 study sponsored by FASB found evidence that managers purposefully try to structure leases as operating leases to avoid incurring additional liabilities. Providing broad guidelines may improve the representational faithfulness of financial statements.
In addition, principles-based accounting standards allow accountants to apply professional judgment in assessing the substance of a transaction. This approach is substantially different from the underlying “box-ticking” approach common in rules-based accounting standards. FASB Chair Robert Herz has stated that he believes the professionalism of financial statements would be enhanced if accountants are required to utilize their judgment instead of relying on detailed rules.

Firstly, the managers of the business will want to know how things are going. They need financial information in order to plan for the future; they then need more up-to-date information in order to check whether actual performance is on target. This process is known as controlling the costs and finances. In accounting it is known as management accounting. So, management accounting is done by the managers, for the managers, for the purposes of planning and control.

Secondly, there are several groups of people who may have an interest in the finances of the business. The law says that they have a legal right to certain information. The whole process of providing this information (and of maintaining a book-keeping system capable providing it) is known as financial accounting.