1st Bac - Concept and importance of accounting

 Why is accounting important?

o   It’s important that the entrepreneur knows about the financial aspect of the entrepreneurship. The accounting process starts with the documentary support that must be present at the moment of generating a determined financial transaction. This ends with the generation of periodic reports or summaries called balance sheets or financial statements.

·      Running an entrepreneurship

o   There needs to be an owner or manager that in the process of decision making and business control, they use the capture, processing, reporting and analysis of data transformed into information. This will allow them to identify signs related to what is happening inside and out of the entrepreneurship.

o   Accounting is an administrative tool oriented towards the generation of useful information to know about the evolution of the inner financial state of the business created.

·      Accounting and the financial control of the entrepreneurship

When there a need to know the financial aspects of an entrepreneurship, the entrepreneur must have information that allows the identification of strengths and weaknesses in areas such as: liquidity, indebtedness, efficiency and profitability of the business.

o   Liquidity: Liquidity means how quickly you can turn an asset into cash. Liquidity means that the entrepreneurship has financial resources (money) to pay employees and providers.

o   Profitability: Profitability is ability of a company to use its resources to generate revenues in excess of its expenses. In other words, this is a company's capability of generating profit from its operations. The accounting information determines that the entrepreneur at the end of a period (month, trimester, semester, year) knows if the effort and investment of resources made in the business is compensated by the income.

o   Efficiency: This determines how the money invested in the entrepreneurship is managed to meet on time with the sales made. This helps to keep a good image by delivering the goods offered.

o   Indebtedness: It refers to the evaluation of the level of the investment financed by resources borrowed by others, not the entrepreneur (banks, association of savings and credits, family, friends, etc.).

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