Question

Having a accounting system in place to generate reliable accounting information is imperative for any business. It allows the owner, and investors to know if the company is making profit, how much they are making, and what they need to do to increase the profit. Having the accounting information allows them to see where they are spending their money, and if they need to increase, or decrease spending in a certain category. It also shows them how much revenue they are making, and if they need to increase, or decrease the amount they are charging for their services, or products. Having accurate accounting records helps the owners to attract stockholders, and investors. This accuracy will help them retrieve loans from the bank to expand their business, or make improvements. The banks want to see if the company will be able to pay back the loans. Some of the things they will look at is, debt to income ratio, assets, and if the company is making a profit. Investors will want to know that the company will continuously be making a profit. The accounting records can be used as a guide to improve any business. Without these accurate records, owners will not know the financial status of their company.

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Answer 1

Hello! Here is the answer to your question. Hope it helps.

I totally agree with the statements mentioned in the above paragraph.

The three important things mentioned here are: accounting system, accounting information and accounting records. All three are interdependent and very fundamental and important to maintain any track record of the day to day operations and performance of a company.

The topic discusses the importance of accounting for any business. For a proper accounting to be done, there should be a proper accounting system in place, which facilitates the recording of actual accounting information into the system. This accounting information gives birth to the accounting records which are used to create and distribute the accounting information which can be understood and digested by the parties which are dependent and affected by the performance of the company.

Accounting information and records are needed to generate the financial statements, through which the performance of a business can be evaluated and compared with the competitors. The information is used both by the shareholders, the investors and the lenders. They need to know how much the company is earning, how much profit it is making and how much efficiently it is operating. All this requires proper recording of accounting information using sound accounting system.