]

Objectives of Accounting

Objectives of Accounting

The main objectives of accounting are:

To maintain a systematic record of business transactions

  • Accounting is used to maintain a systematic record of all the financial transactions in a book of accounts.
  • For this, all the transactions are recorded in chronological order in Journal and then posted to principle book i.e. Ledger.

To ascertain profit and loss

  • Every businessman is keen to know the net results of business operations periodically.
  • To check whether the business has earned profits or incurred losses, we prepare a “Profit & Loss Account”.

To determine the financial position

  • Another important objective is to determine the financial position of the business to check the value of assets and liabilities.
  • For this purpose, we prepare a “Balance Sheet”.

To provide information to various users

  • Providing information to the various interested parties or stakeholders is one of the most important objectives of accounting.
  • It helps them in making good financial decisions.

To assist the management

  • By analysing financial data and providing interpretations in the form of reports, accounting assists management in handling business operations effectively.

Fundamentals of Accounting

  • Assets- The economic value of an item which is possessed by the enterprise is referred to as Assets. To put it in other words, assets are those items that can be transformed into cash or that generates income for the enterprise shortly. It is useful in paying any expenses of the business entity or debt.
  • Liabilities- The economic value of an obligation or debt that is payable by the enterprise to other establishment or individual is referred to as liability. To put it in other words, liabilities are the obligations that are rising out of previous transactions, which is payable by the enterprise, through the assets possessed by the enterprise.
  • Owner’s Equity- Owner’s equity is one of the 3 vital segments of a sole proprietorship’s balance sheet and one of the main aspects of the accounting equation: Assets = Liabilities + Owner’s Equity. It depicts the owner’s investment in the trade minus the owner’s withdrawal from the trade + the net income since the business concern commenced.