Accounting is the most important part of the business, accounting is extremely important for the recording the whole financial transaction inside a business. It plays a crucial role in the preparation of the whole financial statement.

Accounting is not only important in the field of business, but it is also necessary in the day-to-day lives of the common man. Accounting skills are also used while making an assessment of the interest rates which are needed to pay off a loan.

Why Do We Need Accounting?

Asking that question of an accountant is like asking a human why we need water. We need accounting because it’s the only way for business to grow well and flourish. Accounting is the backbone of the business and financial world. After all, accounting was created in response to the development of trade and commerce during the medieval times.

Financial Accounting and Management Accounting

Financial accounting is the process of recording, summarizing and reporting the details of transactions resulting from business operations over a period of time. These transactions are summarized in the preparation of financial statements, including the balance sheet, income statement and cash flow statement, that record the company’s operating performance over a specified period.

Management accounting is a distinct type of accounting from financial accounting or bookkeeping. It’s closely related, but it’s more concerned with providing financial information that helps managerial decisions. This means that management accounting goes beyond the day-to-day tallying of finances, and focuses more on forecasting and longer term business decisions.

Another key role of management accounting is to help managers decide on the prices of products, by providing all the information regarding costs, market factors, and profitability. Similarly, management accountants can help determine the lifecycle of current products and the viability of new products too.

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