Proper accounting for self-interest as well as economic growth

November 10 is celebrated 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 book keeping method came into effect on that day and it 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.

We know 'account' is a very common word. Accounting is a very important aspect of a business. In case of commercial organisations, the importance of accounts is high. But a large number of businessmen of our country hold a view that maintaining accounts is an easy matter and do not give the matter its due importance.

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

Accounts of commercial organisations are very important and useful. The main concept of a commercial organisation is that it is a going concern, i.e., it will run year after year. The most urgent matter of a going concern is that in no case, money can be drawn for personal purpose and/or paid for any other purpose from capital.

If money is drawn or paid from capital, an unwanted chance of shutting down the organisation arising from 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 jeopardising 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 in different areas of our country which have been shut down or going to be shut down due to shortage of capital.

The reason behind such shortage capital 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 for some capital. The enterprise, which had been closed down due to shortage of capital that was 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 percent of capital. On the other hand, 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 the investor for taking decisions about investment, to take decision for lending by the lender and to collect the perfect amount of revenue by the revenue collecting authority.

In the backdrop of present circumstances 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, FCA is Senior Partner, MABS & J Partners and Ex-Vice President of the Institute of Chartered Accountants of Bangladesh. He can be reached at [email protected]