Thursday, June 4, 2015

OBJECTIVES OF ACCOUNTING

The purposes of accounting are to provide the information that is needed for sound economic decision making. The main purpose of financial accounting is to prepare financial reports that provide information about a firm's performance to external parties such as investors, creditors, and tax authorities. Briefly they are as follows-

To keep systematic records: Accounting is done to keep a systematic and permanent record of financial transactions. In the absence of accounting there would have been terrific burden on human memory which in most cases would have been impossible to bear.

To protect business properties: Accounting provides protection to business properties from unjustified and unwarranted us. This is possible on account of accounting supplying the information to the manager or the proprietor.

To ascertain the operational profit or loss: Accounting helps is ascertaining the net profit earned or loss suffered on account of carrying the business. This is done by keeping a proper record of revenues and expenses of a particular period. The profit and loss account is prepared at the end of a period and if the amount of revenue for the period is more than the expenditure incurred in earning that revenue, there is said to be a profit. In case the expenditure exceeds the revenue, there is said to be a loss.

To ascertain the financial position of business: The profit and loss account gives the amount of profit or loss made by the business during a particular period. However, it is not enough. The businessman must know about his financial position i.e., where he stands; what he owes and what he owns? This objective is served by the balance sheet or position statement.

To facilitate rational decision making by the management: Accounting these days has taken upon itself the task of collection, analysis and reporting of information at the required points of time to the required levels of authority in order to facilitate rational decision making.

Providing information to its users in useful format: The ultimate purpose of accounting is to provide information to different users. The users utilize the information in making informed economic decisions.

1 comment:

  1. Objectives of accounting in any business is to systematically record transactions, and prepare financial statements.

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