Advantages and Disadvantages of Corporate Accounting


Meaning of Corporate Accounting

Corporate Accounting is a branch of accounting that deals with the accounting of companies.  This accounting involves acquiring, classifying, recording, summarizing, and interpreting all financial transactions concerned with the business activities of corporates. Corporate accounting deals with the preparation of cash flow statements, balance sheets, final statements and handle specific events of corporate businesses such as amalgamation, absorption, and preparing consolidated documents. It is one that is dedicated to record and maintain the financial records of a single firm only. Corporate accountants pay attention only to the financial aspects of firm in which they are employed. 

Corporate accounting is an efficient source for evaluating the financial strength and operational status of the firm. This type of accounting regulates all financial activities of the business and ensure that they comply with rules and regulations established by competent bodies. Investors depend upon the accounts prepared by corporate accountants for knowing the information about the assets and liabilities of the company in order to take the right investment decision. In addition to this, management teams are also dependent upon financial reports generated by corporate accounting for making strategic decisions.

Advantages of Corporate Accounting

  1. Create/Monitor Budget: The foremost benefit provided by corporate accounting is that it enables business in creating and monitoring its budget. Business has complete record of all its transactions related to money i.e. from where it is coming and where it is going. It reduces any chances of discrepancies or confusion related to revenues or expenses of organizations. All these enables companies in ensuring that each of their activities are going as per the pre-planned budget. 
  2. Tracking Business Expenses: Monitoring of business expenses is must for every organization for attaining the desired results. A little addition in overall expense of business may lead to inefficiency and adversely affect its profitability. Corporate accounting enables businessmen to track their expenses on a daily basis via recording all entries in a systematic manner on accounting software’s. Any over expenses should be timely detected and controlled by business for avoiding any higher losses.
  3. Monitor Financial Health of Business: Corporate accounting is an efficient tool for monitoring the financial health of business. It enables management in identifying the business status in terms of its revenues and expenses at any point of time. A business is considered a desirable one only if its revenues are more than the cost incurred in carrying out its operations. Proper recording of all transactions assist in identifying such activities that are going inefficient for organization having negative influence on its overall performance. 
  4. Assist in Business Purchase Decision: It assist in taking informed purchase decisions for business by supplying all relevant information. Management has a complete database related to assets, liabilities, revenues and expenditures of business. It is maintained systematically by accounting software’s that can be accessed easily while taking major expenditure decision by managers as they can have major impact on monthly cash flow of business. Therefore, all decisions are taken in accordance with cash availability and other requirements so that there is no obstacle in future performance of business. 
  5. Effective Management: Corporate accounting facilitate effective management practices within the organization. Managers are able to easily evaluate the business performance in presence of sufficient accounting records. They can able to take corrective decisions timely for removing the shortcoming of business.  In addition to it, management are able to formulate better plans as well as regularly monitor distinct operations of business that results in effective management control. 
  6. Facilitate Audit: Every business need to go for certification of their book of accounts irrelevant of their size, nature and type of activities. Auditing is mandatary practice where auditor evaluates business accounts and issues it a clean chit in case if there are no irregularities found in its accounts. Corporate accounting enables auditors in performing a proper examination of books by maintaining a systematic record of all business transactions. 
  7. In compliance of law: Maintaining proper record of business transactions assist in complying with law regulations. All business need to deal with several government departments such as sales tax, income tax, excise, custom duty etc. Periodic returns are filed with these departments by businesses for which they use their book of accounts.  These accounting records serve as a legal evidence in court of law.
  8. Monitor Business Growth: This is one of the top benefit provided by corporate accounting to management team. It enables them in easy tracking of business growth by maintaining a full record of its assets, liabilities and on-hand revenues. An inter-firm and intra firm comparison can be easily made using the trading and profit & loss accounts. All these enables in detecting the growth level of organizations and accordingly taking future decisions. 
Advantages and Disadvantages of Corporate Accounting
Advantages and Disadvantages of Corporate Accounting

Disadvantages of Corporate Accounting

  1. Considers only Monetary Items: The foremost disadvantage of corporate accounting is that it considers only those items which can be measured in money terms. Non-monetary items which may be of great importance for business are totally ignored. Corporate accounting may in this way fail to reveal correct financial position of business organization.
  2. Accounting Information may be Biased: Accounting information presented by company statements may get influenced by accountants. There are distinct methods available that accountant personnel’s can employ related to treatment of revenue and capital expenses, methods of depreciation, inventory valuation etc. Any of these methods may be used for measuring the income of entity and in certain cases this calculated income might be incorrect due to lack of objectivity.  
  3. Ignores Time value of Money: Corporate accounting ignores the time value of money and treat it money value as constant. It does not consider the effects of inflation due to which value of money keep on changing always. Historical cost is used for preparing financial statements ignoring the current values due to which these statements may fail to exhibit true financial position. 
  4. Manipulation of Accounts: Accounts may be manipulated by management or accountants in order to misrepresent the facts. They may change the accounting figures as per their own interest and represent the misappropriated data to investors. Profit may be reduced by them with a motive to evade tax and may increase it for attracting shareholders. 
  5. Restrain of Accounting Principles: Corporate accounting may also suffer from limitations of accounting principles used by accountants. It will adversely affect the capability of financial statements to exhibit real position of business affairs. For example, generally assets are stated in company’s statements after deducting the amount of depreciation. However, values of these assets may not correspond to real position in case of inflation as it has not considered the change of values.