November 10 is celebrated as International Accounting Day which is also frequently referred to as International Accountants Day. The objective of observance of a day in the year for a particular subject is to highlight the importance of that subject. Accordingly, Accounting Day is observed to highlight the importance of accounting.
'Account' is a common word. Every one usually maintains some accounts for their personal purpose. Accounts are a very important aspect of 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. Almost in all business organisations there is a lack of personnel with proper accounting background to handle accounts.
Actually, accounts are 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 someone with accounting background can comprehend these. For example, there are two types of accounting: one, Single Entry System which is applicable only in a very small enterprise where the owner himself performs every operational activity of the enterprise. The other one is Double Entry System which is the actual accounting system for all types of commercial organisations. There are also two bases of Double Entry System of accounting - one is cash basis, in which only cash transactions are considered and the other is accrual basis where all other transactions which are due to the case, have taken place, but cash transaction has not yet been performed. As for example, electricity has been consumed during December but the bill has not yet been paid. This will not be considered on cash basis of accounting, but on accrual basis of accounting this will be considered during preparation of accounts at the end of December. Apart from this there exist lots of matter of policies and assumptions, such as rate of depreciation on fixed assets, policy of depreciation, stock valuation policy, etc., during preparations of proper accounts. So maintaining of books of accounts and preparations of proper accounts are not as easy a task as businessmen of our country may think.
Accounts of business organisations are very important and useful. The main concept of a business organisation is that it is 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 essential to determine net profit correctly.
To highlight the importance of maintaining proper accounts, it may be mentioned that many foreign and multinational companies have been doing business in our country since long very smoothly and without facing any shortage of capital. One of the reasons behind such stability of their business is that they are very particular and keen about correctly and timely preparation of accounts.
In our country there is a dearth of proper knowledge, practice and attitude of giving due importance to accounts. According to media reports, there are lots of small and micro enterprises at different areas of our country which have been shut down or going to be shut down due to shortage of capital created because of non-maintenance of accounts. It is true that whatever may be the scale of enterprise - small, medium or large, there is necessity of some capital. The enterprise, which had been closed down due to shortage of capital had 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 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.
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 Council Member and Ex-Vice President of the Institute of Chartered Accountants of Bangladesh.
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