What Is the Purpose of an Accounting Department Within an Organization?

Without accounting, your business would stumble blindly through its daily operations without ever understanding the big-picture numbers. Accounting information explains how you arrived at your profit or loss, providing clues about where your company is succeeding and failing. It also gives you the numerical tools to collect the money your customers owe you and pay the financial obligations you incur to employees, tax agencies and suppliers.

Your accounting department makes sure you have enough cash to operate by following up and reminding customers of how much they owe and when payments are due. It also keeps track of the payments you owe to suppliers, utility companies and other vendors and stays current on these payments. The accounting team monitors these payments to make sure there is enough money going into your checking account from customer payments for your business to pay its bills.

Your employees keep your business running, and you have a moral, legal and financial obligation to pay them fairly and on time. Your accounting department figures gross payroll amounts as well as withholdings for income taxes, Social Security and Medicare taxes and employee contributions to health insurance premiums or retirement accounts. Payroll accounting also involves keeping track of tax withholdings and overall payroll expenses over time, enabling you to evaluate whether your payroll costs are appropriate for your industry or whether you need to introduce efficiencies.

Your business must pay income, revenue and payroll taxes periodically to a variety of local, state and federal agencies. Your accounting department is responsible for compiling and organizing the information required for filling out these forms, including payroll information, sales figures and cost of operating expenses for calculating net income. Accounting tracks your tax liabilities over time and makes sure your business has set aside enough to pay its obligations.

The numbers your accounting department compiles can provide insight into which aspects of your business are most profitable and which cost too much to operate. This information can help you to decide whether to focus on a particular business activity, such as wholesale or retail, or it can spur you to experiment with fresh approaches, such as introducing new products that expand on your strengths. Accounting also tells you whether your cash flow is sufficient to make the changes you are planning.