Advantages and Disadvantages of Accounting

हिंदी में पढ़ें:

Accounting is an important part of business because without accounting the economic transactions in the business cannot be managed and it plays a very important role in the communication between the business and its representative, but there are many advantages and disadvantages of using accounting

Talking about the advantages, it provides a systematic way to manage business transactions, it helps in preventing frauds, it helps in generating different types of reports, etc. Talking about disadvantages, it is cost-consuming activity, time-consuming activity, complex, etc.

In business, accounting is done by the management of the business, and the better it is done, the better will be the result, that is why it is very important to have good management in business.

Advantages of Accounting

Following are the advantages of accounting:

1. Management of Transaction:

Accounting helps to manage the economic transactions of business because it provides a systematic way in which it is possible to manage transactions. Business transactions are managed through identifying, measuring, recording, classifying, summarizing, analyzing, interpreting, and communicating transactions, etc.

2. Replacement of Memory:

In business, there are a lot of transactions every day and it is not possible for the human brain to remember those transactions because human memory is not capable of storing everything. Therefore, accounting is used with the help of which all the transactions are recorded in the respective books. These books can be physical or virtual.

3. Financial Statements:

Financial statements talk about the position of the business, it includes trading account, profit and loss account, and balance sheet, etc. Proper use of accounting is necessary to prepare financial statements such as identifying, measuring, recording, and classifying transactions, etc. It is not possible to prepare financial statements without accounting because financial statements are a part of accounting.

4. Tax Calculation:

Every person who is liable to pay taxes has to pay taxes to the government, especially businesses have to pay many types of taxes if applicable such as income tax, sales tax, corporate tax, Excise tax, Excise duty, etc. Accounting helps in calculating taxes because with the help of accounting the output of transactions is obtained and taxes are paid as per the output of transactions.

5. Prevents Fraud:

The larger the business, the greater the possibility of fraud, similarly, the smaller the business, the lesser is the possibility of fraud because the transactions take place as per the business. Accounting helps prevent fraud because accounting provides various reports that help identify suspicious or fraudulent transactions.

6. Planning:

Accounting helps in planning because planning is based on data and accounting provides data for planning. Accounting provides financial data for planning such as manufacturing data, trading data, profit and loss data, balance sheet, cash flow data, income and expense data, etc.

7. Evidence:

Accounting data is used as evidence because accounting data has evidentiary value and is valid before the law, but some data has high evidentiary value, and some data has low evidentiary value.

8. Evaluation:

Accounting helps in evaluating the growth and performance of the business as the growth and performance are measured by accounting data or reports. Business tells about its growth and performance through accounting data such as financial statements (like trading account, profit and loss account, balance sheet etc.) etc.

Disadvantages of Accounting

Following are the disadvantages of accounting:

1. Time Consuming:

Accounting is a time-consuming process as it involves various processes like identifying, measuring, recording, classifying, summarizing, analyzing, interpreting, communicating, etc. All these processes take more time to execute.

2. Expensive:

Accounting is a cost-consuming process because it involves various processes which require highly qualified people and equipment to perform. The larger the business, the higher the cost, and the smaller the business, the lower the cost.

3. Complex:

Accounting is a complex process as it involves various concepts, rules and principles etc. and to execute the accounting process it is necessary to have knowledge and understanding of these concepts, rules and principles etc. The accounting process cannot be carried out, without accounting knowledge and understanding.

4. No Guarantee:

Accounting does not provide guarantee of accuracy and reliability of data as it records all monetary transactions even manipulated transactions, but it can be detected with the help of auditing. If management is involved in manipulation, then it is difficult to detect.

5. Manipulation:

Accounting data can be manipulated as it is executed by internal management. Management can manipulate profits, losses, sales, purchases etc. to collect money from the market and avoid taxes etc.

Read Also:

• What is Accounting? Meaning, Features, and More.
• Importance of Accounting
• Process of Accounting
• Source Documents of Accounting
• Branches of Accounting

QNA/FAQ