What is the importance of having a proper accounting system in place and why it is important to understand financial statements?

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A proper accounting system is important both for external and internal stakeholders in a business. For people outside the company, good accounting practices and clear financial statements are crucial in making investment decisions, including whether one should buy a company's stock, loan money to a company, or extend credit to a company if one is a supplier. For business owners, accounting and financial statements help you understand issues such as profitability and cash flow with respect to different operations of a company; if you just look at basic information such as revenue, you don't get a clear picture of whether a given part of the operation is actually making a profit. Accounting is also important for tax purposes.

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