The Importance of Good Accounting to Understand Your Business Performance

1. Introduction

Good accounting is a cornerstone of any business, regardless of size or sector. Accurate and timely accounting information allows entrepreneurs to know the true financial situation of their business, make informed decisions, comply with legal and tax obligations, and plan strategically for the future.

2. Accounting and Tax Framework

Accounting must comply with a number of legal regulations that ensure its transparency and reliability:

• International Financial Reporting Standards (IFRS): Adopted by many jurisdictions, they allow the standardisation of accounting reports at international level.
• General Accounting Plan (PGC): In many countries, such as Spain, it regulates the structure and principles of financial accounting.
• Tax obligations: Tax legislation requires companies to keep accounting records and file tax returns (VAT, corporate income tax, personal income tax, etc.).
• Audits and supervision: Depending on the volume and nature of the business, auditing of financial statements may be mandatory.

3. Advantages of Orderly Accounting

Keeping organised accounts offers multiple tangible and intangible benefits:

• Financial control: Allows monitoring of income, expenses, profitability and liquidity.
• Legal compliance: Avoids penalties for tax errors or non-compliance.
• Ease of banking and financial procedures: Reliable financial statements make it easier to obtain external financing.
• Informed decision making: Accounting analysis facilitates investment decisions, hiring, cost reduction, etc.
• Transparency with partners and shareholders: Increases trust and credibility.

4. Accounting as an Analytical Management Tool

Analytical or management accounting allows for more in-depth analysis of financial information, facilitating more effective management:

• Segmentation of results by areas, products or business lines.
• Calculation of real costs: Identification of the direct and indirect costs associated with each activity.
• Profitability analysis: Determines which products or services generate the most value.
• Budgeting and control: Monitoring of budget compliance and detection of deviations.
• Continuous improvement: Detecting inefficiencies and opportunities for operational improvement.

Conclusion

Accounting should not only be seen as a legal obligation, but as an indispensable strategic tool for the efficient management of a company. Clear, accurate and analytical accounting helps to understand the evolution of the business, anticipate problems, uncover opportunities and ensure long-term sustainability. Investing in good accounting is investing in business success.

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