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International Accounting Day-2021

Proper accounting ensures self-interest, economic growth

Md. Shahadat Hossain || BusinessInsider

Published: 16:35, 10 November 2021  
Proper accounting ensures self-interest, economic growth

Md. Shahadat Hossain

November 10 is observed as International Accounting Day which is also frequently referred to as International Accountants Day.

The reason behind choosing this particular date is that the first book on double entry bookkeeping method came into effect on that day, and created a recorded foundation for any future work or study on business accounting to be carried out.

The book was authored by Luca Bartolomeo de Pacioli, an Italian mathematician who explained the use of accounting journals and ledgers.

The objective of observance of a day in the year for a particular subject is to highlight the importance of accounting.

'Account' is a very common word that is known to all. Also, accounting is a highly important aspect of a business.

In the case of commercial organisations, the importance of accounts is high. But a large number of businessmen in our country hold a view that maintaining accounts is an easy fact, and thus the subject is ignored to some extent.

Actually, accounting is not so easy a matter and is not mere doing addition and subtraction of some figures. There are some procedures, basis and principles of accounting, selection and implementation. Only people with accounting background can comprehend these issues properly.

Accounts of commercial organisations are highly important and useful. The main concept of a commercial organisation is sustainability or going concern like it will run years after years.

The most urgent aspect of a going concern is that in no case, money can be drawn for personal purpose and/or paid for any other purpose from the capital. If money is drawn or paid from capital, an unwanted chance of shutting down the organisation arises as a shortage of sufficient capital may be created.

Eventually, the owner of an enterprise can draw from business only up to the limit of profit without jeopardizing the survival of the enterprise. So, correct determination of net profit is a vital issue to run any organisation as a going concern.

The preparation of correct accounts is only the way to determine net profit correctly. The purpose of accounting is also to accumulate and report on financial information about the performance, financial position and cash flows of a business.

The information is then used to reach decisions about how to manage the business, or invest in it, or lend.

In our country, there is a lack of proper knowledge, practice and attitude of giving due importance to accounts. According to media reports, there are lots of small and micro enterprises (SME) in different areas of our country which have been shut down or are going to be shut down due to the shortage of capital. The reason behind such capital shortage is non-maintenance of accounts.

It is true that whatever may be the scale of an enterprise - small, medium or large, there is a necessity of some capital. The enterprise, which had been closed down due to capital shortage, started with necessary capital at the beginning of the business.

The reasons behind loss of capital are two - one is the continuous loss and the other is drawing by the owner more cash than the amount of net profit earned. Whatever may be the reason, the fundamental problem is lack of maintaining proper accounts.

If the reason was continuous loss, the owner could come to know it through accounts and could close down the enterprise before losing hundred per cent of capital. On the other part, how much money the owner can take from his business in a day or in a month can be determined through maintaining proper accounts.

So, proper and correct accounts for a business enterprise is essential to protect the interest of the owner as well as to protect the interest of investors for taking decisions about investment, to take decisions for lending by the lender, and to collect the perfect amount of revenue by the revenue collecting authority.

In the backdrop of the current scenarios and to create awareness about the importance of maintaining accounts, necessary steps need to be taken to prepare the correct accounts in time; perform the audit of accounts properly and evaluate the accounts carefully. On this International Accounting Day, our commitment should be to ensure the preparation of timely, proper and correct accounts for all sorts of entities in self-interest as well as to protect the interest of the society and country.

Md. Shahadat Hossain is an FCA and a senior partner of MABS & J Partners. He is the ex-vice president of the Institute of Chartered Accountants of Bangladesh (ICAB). The writer can be reached on the mail -- [email protected].

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