Bookkeeping accounting will help you plan ahead for your business. The account that shows annual net profit or net loss of a business is called Profit and Loss Account. Another important set of account if as company’s final accounts is the profit and loss account. Trading is maintained by a trading company to find out the gross profit or gross loss as a result of the business activities. These statements are developed for the sake of company's stakeholders such as general public, shareholders, investors, creditors etc. 1. P&L account is a component of final accounts. In order to optimize the Accounts Payable and Accounts Receivable cycles, the accuracy of financial statements plays a key role. The following items usually appear on the debit and credit side of a Profit and Loss Account. So, the importance of bookkeeping to a business is the same as that of fresh air to a man to exist. The Importance of Bookkeeping Accounting for Small Businesses. Forecasting your business needs ahead and planning for purchases and other business miscellaneous will become easier with bookkeeping. You can call it budgeting; it is all the same. Without bookkeeping records a business would meet death, through not instantly, but in a short time. It is very rare, almost impossible for a single human being to manage and excel in all the functions at the same time, which in turn, hampers the success as well as the growth of a business. parties. 7. The success of a business depends to a great deal on how efficiently these functions are performed. Balance sheet is also knows as statement of financial positions. Profit and loss account – Definition. Answer (1 of 1): Financial accounts such as income statement, balance sheet, statement of stockholder's equity and statement of cash flows have lots of importance in terms of their usage. The balance sheet and income statement provide much useful information for a user of accounts to better understand how the business is doing. Trading account of a joint stock of a company is the first main set of account of final accounts. Depreciation and why it is important to your business Depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, depletion or other such factors. Accounting is a discipline which records, classifies, summarises and interprets financial information about the activities of a concern so that intelligent decisions can be made about the concern. Other outgoing payments include salaries and daily wages that need to be paid (payroll), dividends need to be given to the shareholders, inventory needs to be managed, and creditors need to be paid. Trading account, Profit and Loss account and Balance Sheet together are called final accounts. Final accounts show both the financial position of a business along with the profitability, they are used by external and internal parties for various purposes. But it is only possible, if proper books of accounts are maintained in the business concern. A danger with just looking at one year's results is that the numbers can hide a longer term issue in the business. This is the primary reason why partnerships are important. The American Institute of Certified Public Accountants has defined the Financial Accounting … Financial accounting is important because it provides an organization's stakeholders with business statements, allowing them to know if the organization is making or losing money. It is prepared to determine the net profit or net loss of a trader. This information is essential in determining if a company is able to maintain profitability, according to Accounting-Careers-Guide.com. 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