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Economics

WHAT WOULD HAPPEN IF ACCOUNTING DIDN’T EXIST

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WHAT WOULD HAPPEN IF ACCOUNTING DIDN’T EXIST

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Accounting is currently applied by most of the people in the globe in one way or another, defined as a system used in reading, measuring, identifying, as well as interpretation of results of economic activity. Accounting practices are not only used in business operations but also the everyday activities of individuals in different situations.

Tracking business performance

All the money transactions that an individual carries as well as an organization requires to be accounted for. Through accounting, one can track their spending and determine the longevity and financial forecast of their entities. This is achieved by monitoring the records of expenditures of an organization(Davie, 2000).In the case of accounting practices were not in existence, tracking of the business performance would no longer be achieved.

Decision making

All information regarding the evaluation of economic decisions and investment analysis is backed on the accounting information contained from the operations of the considered entity. Information regarding efficiency profitability and liquidity are attributed to practicing of accounting principles. Without the existence of the accounting practices, it becomes hard for an organization to meet the requirements for the establishment of concrete decisions, which are generated on the accounting information (Davie, 2000).

Record keeping

Data that is collected or gathered from several sources organized interpreted analyzed and communicated to the end-users for the realization of valuable and economic decisions is subjected to record-keeping, which is a tool of accounting(Black, 2017). If accounting were never in existence, sectors such as companies would not be capable of developing fiscal and monetary policies.

Detection and fraud prevention

Organization’s events are tracked by the recording of all the operations conducted both on the internal and external environment of the firm, which is developed by the accounting standards. The accounting entries easily detect any case of overrating any of the events or engagement into any questionable practices within the firm. Thus any nonexistence of accounting will affect the performance of an organization since it becomes hard for the management to detect fraudulent practices (Black, 2017).

Acquisition of funds and loans

For one to acquire any funding from the financial institution, they are subjected to the production of their financial state of affairs using a presentable manner, which is used by the lending organization for accessement and measurement of risk they are faced with from the lending. The absence of the accounting tips will pose a challenge to the individuals when it comes to explaining their financial state of affairs.

Credit building and reputation

An organization’s credit score and reputation are established through the embracement of sound accounting information that guarantees the stakeholders that all the transactions and the firm’s operation are monitored and evaluated. Influencing their trust towards the management of their investment decisions, in case the accounting approaches never existed, it would be challenging for one to gain confidence in an organization that has no reference to their past and present experiences and practices (Jiambalvo, 2019).

Investors

Accounting data is sufficient both to individual and corporate investors in the valuation of the worthiness of a firm, and evaluation of the viability of investing with the company absence of accounting ideas will make it hard to involve in such informed decisions (Warren, 2015).

Tax authorities

Most of the corporate tax departments depend on the accounting data and reports for calculation of the taxes owed, afterward the authorities retrieve the financials for confirmation of whether the specific organizations are observant of the taxation guidelines and calculation of taxation correct(Duska,2018). The absence of accounting information and techniques would pose a challenge for such authorities when figuring out the adherence to the rules set by companies.

A world where accounting practices and information does not exist would be one of the most chaotic environment, where one cannot track events nor track their progress or even forecasting future business events and opportunities.

Reference

Davie, S. S. K. (2000). THE SIGNIFICANCE OF AMBIGUITY IN ACCOUNTING AND EVERYDAY LIFE: THE SELF-PERPETUATION OF ACCOUNTING. Critical Perspectives on Accounting11(3), 311–334. https://doi.org/10.1006/cpac.1999.0342

Black, W. H. (2017). Book review: History of Management Accounting In Japan: Institutional & Cultural Significance of Accounting. Accounting History22(3), 387–389. https://doi.org/10.1177/1032373217706769

Jiambalvo, J. (2019). Managerial accounting. John Wiley & Sons.

Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. John Wiley & Sons.

Warren, Jr, J. D., Moffitt, K. C., & Byrnes, P. (2015). How Big Data will change accounting. Accounting Horizons29(2), 397-407.

 

 

 

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