Objectives of accounting

Accounting

Accounting may be defined as the Identifying, measuring, recording and communicating of financial information.

Objectives of Accounting

These are the following objectives of accounting:-

(a) To keep systematic record: Accounting is done to keep a systematic 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.

(b) To protect and control business properties: Accounting provide protection to business properties from unjustified and unwarranted use. Unjustified and unwarranted use is avoided by supply of the following transaction:

• The amount of the proprietors funds invested in the business.
• How much the business has to pay the others.
• How much the business has to recover from others.
• How much the business has in the form of (a) fixed assets, (b) cash in hand, (c) cash at bank, (d) stock of raw material, work in progress and finished goods?

(c) To ascertain the operational profit or loss: Accounting helps in ascertaining the net profit earned or the loss suffered on account of carrying the business. This is done by keeping a proper record of revenue 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 profit. In case the expenditure exceeds the revenue, there is said to be a loss.

(d)  To ascertain the causes resulting into Profit earned or loss suffered: Accounting helps in knowing the exact reasons leading to net profit earned or net loss suffered. It highlights the area of strength or weaknesses of business for taking corrective measures.

(e)  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 businessmen must know about his financial position i.e. where he stand; what he owes and what he owns? This objective is served by the balance sheet (also called position statement). The balance sheet is a statement of assets and liabilities of the business on a particular date. It serves as barometer for ascertaining the financial health of the business.

(f) Tho ascertain the amount payable or receivable: The goods may be purchased or sold on credit for the enterprises. It will result into opening of debtors and creditors Account. How much amount is payable to the creditors, what is the credit period extended by them has to be ascertain so that timely payments could be made to the suppliers. Similarly, the amount receivable from debtors is also ascertain so that timely collection may be made in order to avoid bad debts and to improve liquidity position of the enterprise.

(g) To watch the movement of capital: Every businessmen is interested to know whether the capital introduced by him is intact or not. The upward or downward movement of capital is closely watched from the account maintain for this purpose.

(h) To prevent errors, theft and frauds: The proper recording of the item purchased and used keeps a check on the physical stocks of the raw materials, finished goods, stationary items and properties of the business. Accounting helps in preventing errors, thefts and fraud.

(I) To know the progress of the business: The trend of the expenses, losses, incomes, sales or purchase indicate the progress of the business from year to year. It helps in taking timely corrective measures.

(j) To have valuation information for ledger and tax purposes: The business enterprise are supposed to follow the relevant legal and tax requirements. These requirements are linked with amounts of profit, capital, sales, and other aspect of business which are available from the accounting records. The timely fulfilling legal and tax requirements protects from unnecessary burden of penalties and losses.

(k) To facilitate rational decisions making: Accounting these days, has taken the task of collection, analysis and Reporting if information at the required point of time to the required level of authority in order to facilitate rational decisions making.