Accounting is an important aspect for any business. It not only helps the business to know their financial status but also gives important data to the enterprise that who is the debtor and creditor of the company, what is the cash balance, bank balance, what are the interest payments etc. Proper Accounting ensures the business can take effective decisions and can have up to date knowledge of their financial commitments.
Some of the consequences of Poor Accounting are:
- Misappropriation of Assets – A business owner might think he’s only using his own assets when he takes his business goods for personal use, such as a ream of copy or pizza at the end of the night, but his employees might see things differently.
- Civil & Criminal Penalties – If company’s management is unethical to the point of financial fraud, the company could be subject to civil & criminal penalties. Further, investors of the company may be able to sue the company and its owners for civil damages. Small-business owners should exercise caution, as not understanding accounting practices and standards is not a defense for fraudulent reporting.
- Loss of Reputation – If small business owners are managing their business in an unethical manner, word will eventually get out. This is especially true for small businesses in tight-knit communities. In general, customers would rather shop at businesses that operate ethically, take care of their employees and support their communities. If your company does not operate ethically, this can affect the willingness of customers and suppliers to conduct business with you. Over time, this may destroy your business.
- Loss of Human Capital – Many good employees do not want to work for a company that is unethical. Accounting professional standards require that accounting work is performed ethically and with integrity. If you pressure company accountants to behave unethically, these accountants can’t uphold the standards of their profession, and they might risk loss of their license or credentials. Reputable accountants will not work for an employer who expects unethical behavior.
Poor accounting can make the business lose money. If the accounting is not proper then the business cannot know what are their financial commitments and hence the company may have to pay penalty in case of delayed payments. Also if the accounts of the debtors and creditors are not properly maintained then the business cannot know that to whom the money is owed and to whom the money is to be paid. This can cause undue hardships to the business in settling their accounts. When the accounts are not properly maintained then it can also bring legal consequences on the business enterprise as many statutes require proper maintenance of books of accounts. And if the accounts are not properly maintained, such enterprises are liable to penalty and fine. Proper accounting ensures internal control in the business. On the contrary if the business is not maintaining proper accounts then the chances of fraud also increases. Frauds like teeming and lading, cash misappropriation, theft etc. can easily occur if proper accounts are not maintained. The business enterprise cannot know the exact profit and loss of the business when the accounts are not maintained properly. Also wrong decisions leading to financial loss can also be taken if the accounting data that is relied upon is error prone. For corporate it is even more important that they ensure proper accounting records as any default on their part can result in hampering the image of the corporate and result in revenue loses.
Accordingly the importance of proper bookkeeping is realized at a much larger scale in recent times and any error in accounting can lead to loses for any business enterprise.
D.J.Accounts can help you in managing your accounts in an appropriate manner, please visit our website or call us.