What is the primary role of accounting in a business?

The primary role of accounting in a business is to track financial transactions. Accounting serves as the foundation for a business’s financial management by systematically recording, classifying, and summarizing all financial activity. This enables businesses to monitor their financial health, make informed decisions, and report on their performance to stakeholders.

Tracking financial transactions provides essential data that can be analyzed to identify trends, evaluate profitability, manage costs, and forecast future financial positions. This foundational tracking is essential for creating financial statements, which are used by management for decision-making and by external parties for evaluating the business.

While preparing tax returns, ensuring compliance with regulations, and managing employee payroll are important functions related to accounting, they are more specific obligations derived from the broader role of maintaining accurate and thorough records of financial activities. These functions rely heavily on the comprehensive tracking of transactions that accounting facilitates, thus underscoring why tracking financial transactions is considered the primary role.