Riaz Academy
WHAT
IS THE NEED AND IMPORTANCE OF ACCOUNTING?
IS THE NEED AND IMPORTANCE OF ACCOUNTING?
We live in a
world where people need things from the day they are born to the day that they
die. Some of these ‘needs’ are physical needs, a need for goods of various
sorts, food, clothing, shelter, and so on. Some of them are emotional ‘wants’,
a need for education, entertainment, or recreation. In satisfying such needs businessmen perform
useful services to their fellow humans. In return they expect to earn a reasonable
reward for their efforts in the form of profits.
world where people need things from the day they are born to the day that they
die. Some of these ‘needs’ are physical needs, a need for goods of various
sorts, food, clothing, shelter, and so on. Some of them are emotional ‘wants’,
a need for education, entertainment, or recreation. In satisfying such needs businessmen perform
useful services to their fellow humans. In return they expect to earn a reasonable
reward for their efforts in the form of profits.
An old saying, “Cut your coat according to your cloth” — so goes the saying.
Even a king becomes a pauper, if he fails to exercise economy in his
expenditures. In other words, every individual
will have to plan his expenditure according to his income. Obviously the
question arises — why is this planning necessary? The need or such planning arises as our wants
or desires or needs for goods and services are ‘unlimited, while the means,
i.e. the income with which to buy such goods and services are limited. Where,
however, goods and services are available free of cost, i.e. gifts of nature,
such as air, water (not in cities) etc., there is no question of economy. But
the necessity of economy is undeniable, where goods or services are not available
free of cost and their supply is limited.
Even a king becomes a pauper, if he fails to exercise economy in his
expenditures. In other words, every individual
will have to plan his expenditure according to his income. Obviously the
question arises — why is this planning necessary? The need or such planning arises as our wants
or desires or needs for goods and services are ‘unlimited, while the means,
i.e. the income with which to buy such goods and services are limited. Where,
however, goods and services are available free of cost, i.e. gifts of nature,
such as air, water (not in cities) etc., there is no question of economy. But
the necessity of economy is undeniable, where goods or services are not available
free of cost and their supply is limited.
A proper and
fair planning of expenditures helps us to ensure proper use of our income. Of
course, it is· true that the
quantity of goods
or money cannot
be increased by
making a proper planning.
But certainly we can ensure most economic use of goods or money at our
disposal.
fair planning of expenditures helps us to ensure proper use of our income. Of
course, it is· true that the
quantity of goods
or money cannot
be increased by
making a proper planning.
But certainly we can ensure most economic use of goods or money at our
disposal.
Most of us
do maintain some kind of a written record of our income and expenditure. The idea behind maintaining such record is to
know the correct position regarding income and expenditure. The need for
keeping a record of
income and expenditure in a clear
and systematic manner has
given rise to the subject of
‘book-keeping’.
do maintain some kind of a written record of our income and expenditure. The idea behind maintaining such record is to
know the correct position regarding income and expenditure. The need for
keeping a record of
income and expenditure in a clear
and systematic manner has
given rise to the subject of
‘book-keeping’.
Some individuals
do not recognize the necessity of keeping
accounts of their day-to-day expenditures, since they spend
their own income and are not required to account for it to anybody else. But such
an idea is wrong. A family,
however, small it
may be, must
exercise proper control
over its expenditures so as to
ensure future security. A family has two-fold responsibilities — one is that
of ensuring all round welfare of the family and the other is the social
responsibility. Needless to say, money is the most essential pre-request for ensuring
peace and happiness of a family, which each and every member desires. The
quantum of money must be adequate in relation to the needs. But mere adequacy
of money will not do; one has to take care of its proper utilization. For
this it would be necessary to
exercise economy and maintain
proper books of account.
On the other hand each and every family must save a portion of its
income for future contingencies. It is
possible to increase the amount of saving through proper management and effective
control of the family expenses. Through such
saving the family helps materializing the economic planning of the country.
do not recognize the necessity of keeping
accounts of their day-to-day expenditures, since they spend
their own income and are not required to account for it to anybody else. But such
an idea is wrong. A family,
however, small it
may be, must
exercise proper control
over its expenditures so as to
ensure future security. A family has two-fold responsibilities — one is that
of ensuring all round welfare of the family and the other is the social
responsibility. Needless to say, money is the most essential pre-request for ensuring
peace and happiness of a family, which each and every member desires. The
quantum of money must be adequate in relation to the needs. But mere adequacy
of money will not do; one has to take care of its proper utilization. For
this it would be necessary to
exercise economy and maintain
proper books of account.
On the other hand each and every family must save a portion of its
income for future contingencies. It is
possible to increase the amount of saving through proper management and effective
control of the family expenses. Through such
saving the family helps materializing the economic planning of the country.
It is all
the more necessary for an organization ‘or a concern to keep proper accounts.
At the end of the year the true result of the economic activities of a concern
must be made available otherwise it will not be possible to run the concern. In
case of a business concern the profit or loss at the end of a year must be
ascertained, because, the amount of profit must be adequate in relation to that
of investment made in the business. If
it is not so or if there is a loss, it is an indication of some defects
existing somewhere in the management of the business. All such defects need to be detected and analysed
and appropriate measures taken for their rectification. But it is only possible, if proper books of accounts
are maintained in the business concern.
So, the importance of book-keeping to a business is the same as that of fresh
air to a man to exist. Without book-keeping records a business would meet
death, though not instantly, but in a short time.
the more necessary for an organization ‘or a concern to keep proper accounts.
At the end of the year the true result of the economic activities of a concern
must be made available otherwise it will not be possible to run the concern. In
case of a business concern the profit or loss at the end of a year must be
ascertained, because, the amount of profit must be adequate in relation to that
of investment made in the business. If
it is not so or if there is a loss, it is an indication of some defects
existing somewhere in the management of the business. All such defects need to be detected and analysed
and appropriate measures taken for their rectification. But it is only possible, if proper books of accounts
are maintained in the business concern.
So, the importance of book-keeping to a business is the same as that of fresh
air to a man to exist. Without book-keeping records a business would meet
death, though not instantly, but in a short time.
Moreover, if
proper books of accounts are not kept in a business, the amount of profit
cannot be ascertained and it will not be possible to distribute the profit
among the owners of the business. The income tax dues to the Government cannot
also be paid. In the absence of books of accounts misuse or defalcation of money
will remain undetected. The owner
and other parties interested will
not be able
to have any information about the
condition of the business. For the same reason in the case of non-trading
concerns like. schools, clubs. colleges, universities, hospitals etc. the need
for accounting is universally recognized.
proper books of accounts are not kept in a business, the amount of profit
cannot be ascertained and it will not be possible to distribute the profit
among the owners of the business. The income tax dues to the Government cannot
also be paid. In the absence of books of accounts misuse or defalcation of money
will remain undetected. The owner
and other parties interested will
not be able
to have any information about the
condition of the business. For the same reason in the case of non-trading
concerns like. schools, clubs. colleges, universities, hospitals etc. the need
for accounting is universally recognized.
Thus we see
that the necessity of keeping accounts is not only confined to business
concerns but it is also useful for all classes and grades of people and organizations.
that the necessity of keeping accounts is not only confined to business
concerns but it is also useful for all classes and grades of people and organizations.