What is the Role of Accounting in Corporate Decision-Making?
Even though it is the most critical function of a company, young and upcoming entrepreneurs may consider accounting to be boring or esoteric. Getting the services of accounting firms in Dubai is critical for businesses as accounting helps entrepreneurs to keep track of all their financial transactions. Accounting is the process by which companies record and report financial data of their business operations.
Even a single error in the accounting process may adversely affect the company’s growth. Similarly, not doing proper accounting will weaken the ability of an entrepreneur to make the right business decisions. However, the role of accounting can’t be restricted to recording and reporting financial data. It also enables business owners, lenders, and investors to make better decisions about a company. Let’s read ahead to understand the role of accounting in business planning and decision making.
Areas where Accounting Helps in Decision Making
Accountants in a company follow a standard set of practices to produce official company financial statements including the balance sheet and income statement. However, recording and reporting financial data is not the only function of accounting services. Accounting allows managers, shareholders or investors to understand a company’s health and make better decisions. Generally, there are three areas in which financial accounting can help entrepreneurs to make better decisions:
Using the financial account function, investors get a baseline of analysis for the financial health of companies. The analysis is based upon the accounting data entered on the company’s financial statements such as balance sheet, income statement, and cash flow statement. Each of these financial statements is created and reported as per the financial accounting standards.
Investors can use the information recorded on the financial statements to make decisions about the company’s valuation and creditworthiness. It will enable them to determine if the company they are going to acquire is fairly valued or not. Investors with no access to financial information will find it tough to understand the historical, current, and prospective financial health of a company. Consult with the best accounting & bookkeeping firms in Dubai to make better investment decisions.
The accounting function is essential for creditors to assess the solvency, liquidity, and creditworthiness of a business. A company’s financial statements give a summary of all its assets and debts (both long term and short term). This valuable piece of information provides the lenders with a clear insight into a company’s creditworthiness. Most creditors rely on certain common accounting ratios that are derived from the financial statements of a company.
Banks and financial institutions assume the liability of a large business loan only after extracting information from the financial accounting techniques. Lenders want to know the level of risk involved while providing a loan to a company. The lenders determine the risk factor by reviewing the company’s financial statements. Determining the risk enables the lenders to decode the amount of money to lend and the rate of interest.
Financial accounting helps company owners to make decisions about the allocation of scarce resources. Robust accounting not only helps outside investors and lenders but also helps business owners to improve the internal operations of their companies as well. The most obvious benefit of having a robust accounting function is that it helps companies to meet the legal and regulatory obligations outlined by the government. However, to meet such requirements, companies need to be transparent about their financial activities and must be accurate in the data reported.
Apart from the regulatory and compliance requirements, accounting is essential for companies to optimise their daily operations. Having access to the services of an accounting firm in Dubai helps companies to identify the types of projects that may open the four for growth opportunities in the future. Advantages of financial accounting include the ability to create robust budgets, understand public perception, track efficiency, analyze product performance, develop short term and long term strategies etc.
Consult with the Best Accounting Firms in Dubai, UAE
The services of accounting firms in Dubai may come in handy for entrepreneurs to make both short and long-term decisions about their company’s financial health. Financial accounting enables managers to make strategic decisions by improving their organisation’s operational efficiency and long-term investment strategies. Apart from merely crunching the numbers, the role of accounting also encompasses monitoring, forecasting, and tracking the performance of a firm.
However, for better results, it is imperative to avail the services of accounting & bookkeeping firms in Dubai such as Jitendra Chartered Accountants (JCA). JCA is one of the leading accounting companies in the UAE with over 20 years of experience. We have helped thousands of businesses to create robust accounting strategies. Our services also include audit, VAT compliance, corporate tax advisory, ICV certification assistance, corporate finance, ESR, UBO & AML-CFT compliance.