Keeping accounts is essential for the proper management of a business.
It is not only mandatory for the legal point of view for any business, but it is also essential for the different analyzes that will help the different decisions to make the business flourish.
The accounting of a corporation must, therefore, follow definite principles so that the financial data it produces is exploitable but also legal in the eyes of the law.
To prosper, society needs to make a profit. Basic accounting is vital in determining whether turnover exceeds expenses.
Although the principle seems modest, finding the areas where an institute spends and earns money is potentially difficult and is only probable with rigorous and regular management.
The accounts of a business must be kept by qualified people to ensure that they are done correctly to represent reality accurately.
Accounting is, above all, a management tool. The steadfastness of accounting information is, therefore, essential to allow managers to manage the business effectively.
The role of accounting is to group and coordinate, but also to examine all financial data in order to deliver business leaders with reliable elements to enable them to make the best decisions according to the conjuncture.
For this, the basic task of an accountant is to enter accounting information and confirm its veracity through the settlement of physical and financial flows.
Properly kept accounts must allow the financial information collected to be reconciled with the various financial transactions actually carried out, which is to say with the transactions which originated them. In particular: sales, purchases, and investments.
Accounting must follow the rules defined by law, but also be in accordance with accounting principles.
Accounting information must satisfy many qualities not only to allow the proper management of a business but also to be compliant from a legal point of view.
The first mandatory accounting criterion is comparability. It means that the info entered in the different accounts must make it likely to compare the financial data both in space and time.
The second criterion and reliability. Obviously, to be reliable, the financial data entered for accounting purposes must not contain any errors.
Accounting data must not only be reliable but must also be accurate to reality. It is the third criterion, known as sincerity. It supposes that the recording of the different events during the accounting year must allow the different accounts to signify their reality and their importance.
The keeping of the accounts of a company must also be done with rigor. Regularity is the fourth criterion. Financial information must conform to the rules and procedures in force. The accounting information produced must also be understandable by the readers.
The fifth principle is the clarity of accounting information. Accounting information is not only intended for specialists in this field. They should also be able to be understood by an audience with reasonable business knowledge.
Finally, the sixth and final criterion concerns cost. Indeed, the costs produced by the accounting of a company should not be disproportionate compared to the value that it brings to the leaders. In other words, the cost of accounting for a business should not exceed its value.
Accounting is notably framed by the Commercial Code, which makes it compulsory to keep sincere and regular annual accounts to give a real picture of the financial health of a company and its assets.