Objectives of Accounting

The primary purpose of accounting is to systematically record, classify, and summarize financial transactions to provide accurate and reliable information. It helps determine profit or loss, evaluate financial position, ensure compliance with legal requirements, and support effective decision-making. 

1. To keep systematic records: The primary purpose of accounting is to systematically record the financial transactions of a business. If financial transactions are systematically recorded on a daily basis, it is easier for a businessperson to understand the transactions that have occurred at any given time.



2. To determine profit or loss: The main objective of every business organization is to earn profit. It is determined whether there is profit or loss at a particular point in time or at the end of a financial year. For this, trading accounts and profit and loss accounts are prepared.

3. To ascertain the financial position of business: Another objective of accounting is to know the financial position of the business. Financial position is understood as the position of assets and liabilities. The balance sheet is a statement of assets and liabilities, which reflects the actual position of receivables and payables, capital, fixed assets and liabilities.

4. To communicate the financial result: The purpose of accounting is to communicate the financial dimensions of a business to various business organizations and related individuals through financial statements.

5. To help to determine tax amount: Any business also pays a certain amount of tax to the government from the profits it earns. Profit is determined with the help of financial statements.

Comments

Post a Comment

Popular posts from this blog

What is accounting? Introduction, Meaning, Defination

What is accounting? Introduction, Meaning, Defination Accounting is a language of business” because it communicates the financial information of an organization in a standardized way, just like language communicates ideas between people. Here’s why: 1. Communication of Information: Businesses need to share financial data with owners, managers, investors, creditors, and government. Accounting records and reports (like balance sheets, income statements, cash flows) act as a universal method of communication. 2. Decision Making: Just as language helps people understand and make decisions, accounting helps stakeholders decide whether to invest, lend, expand, or cut costs. 3. Standardization: Accounting follows rules and principles (like GAAP or IFRS), so financial information is understood the same way worldwide—similar to how grammar rules help people understand a language. 4. Measurement of Performance: Through accounting, businesses can “speak” about their success, failures...
Read more

Process of Accounting/Accounting Cycle

Image
Process of Accounting/ Accounting Cycle The accounting process or accounting cycle is a process that begins with the recording of financial transactions and based on that, financial statements are prepared. 1. Identification of financial transactions: The accounting process begins with the identification of financial transactions. Only financial transactions are recorded in accounting records. All business transactions that can be converted into cash are called financial transactions. 2. Recording of financial transactions in journals and subsidiary books: After identifying financial transactions, the transactions are recorded in a journal or subsidiary book in order. 3. Classification of transactions recorded in ledger accounts: In the third stage of the accounting cycle, all the transactions recorded in the journals and subsidiary books are separated into their similar nature and recorded in the ledger. This is called the classification of financial transactions. 4. Summary of rec...
Read more