Objectives of accounting in any business are; systematically record transactions, sort and analyzing them, prepare financial statements, assessing the financial position, and aid in decision making with financial data and information about the business.
The main object of Accounting is to ascertain the results of the financial transactions of a business concern.
Objectives of Accounting
We have identified 13 objectives that accounting serves.
1. Identification and recording of transactions
The primary object of accounting is to identify the financial transactions and to record these systematically in the books of accounts. As a result, the true nature of each and every transaction is known without much exercise of memory.
With this end in view, the transactions are primarily recorded in general and in a special journal and later on permanently various accounts are kept in the ledger.
2. Ascertainment of results
Every business concern is interested to know its operating results at the end of a particular period.
The amount of profit or loss for a particular period of a business concern can be ascertained by preparing an income statement with the help of ledger account balances of revenue nature.
Surplus or deficit of revenue for a particular period of a non-trading concern can also be ascertained by preparing income and expenditure account or statement.
3. Ascertainment of financial affairs
Ascertainment of debts-liabilities, property, and assets i.e. total financial affairs of an organization at a particular date is another important object of Accounting.
Financial affairs of concern at a particular date can be ascertained by preparing a balance sheet.
4. Keeping accounts of cash
Cash receipts and cash payments are accounted for in this book. A number of daily cash receipts, payments, cash in hand and cash at the bank can be known from this book.
Fraud, forgery, and misappropriation of money are reduced by keeping cash book scientifically and accurately.
5. Control over assets and liabilities
For running a business successfully a businessman is to acquire various assets like land, building, machinery, etc.
He is to face various debts and liabilities like accounts payable, notes payable, loan, bank overdraft, etc. side by side with die acquisition of assets.
The actual position of these debts-liabilities, property, and assets can be ascertained through the proper keeping of accounts.
A businessman can take the right steps for controlling the quantity of assets decrease and liability increase.
6. Controlling money defalcation and cost
Prevention of money defalcation through fraud and forgery and controlling the cost of concern are also the main objects of Accounting.
Prevention of money defalcation and cost control become easier if accounts are kept scientifically.
7. Providing economic data
Another noble object of accounting is to provide the concerned parties with all economic information preparing financial statements and reports etc. in time.
8. Helping tax fixation
Accounts prepared on the basis of accepted accounting principles in considered reliable to the income tax and VAT authorities for easy determination and settlement of tax and VAT.
9. Determination and evaluation of policy
The object of accounting is to help the management in determining and evaluating the management policies in running the business successfully by supplying necessary, information, interpreting and analyzing the financial statements.
10. Testing the arithmetical accuracy of accounts
One of the main objects of scientific methods of accounting is to make sure that accounts have been kept in a proper way. The arithmetical accuracy of accounts kept in the ledger can be assured by preparing a trial balance.
Agreement of a trial balance is the proof of the arithmetical accuracy of accounts. The advantage of taking loans due to the insufficiency of capital, borrowing capital from outsiders is felt necessary to run a business.
Loan givers are not willing to give a loan without knowing the financial position of a business. The financial statement of a business concern reflects the solvency or loan repayment capability of that concern.
11. Acceptability to others
Banks or financial institutions are interested to know the accurate financial position of business concern for sanctioning loans.
On the other hand, the government or other authorities may also ask about the financial position of business concern for various reasons.
In these cases, the accounts maintained in a disciplined way become easily acceptable to the interested institutions or authorities.
12. Creation of values and accountability
The object of accounts maintained in an acceptable way is to create higher values among individuals and organizations and thereby creating awareness in preventing money defalcation, misappropriation of fund and cost control by ensuring transparency and accountability.
13. Following legal bindings and prohibition
As all kinds of business organizations have to abide by some legal bindings and prohibitions, they are to maintain their accounts accurately.
Partnership law, income tax law, and company law, etc. compel business organizations to maintain their accounts in an appropriate manner.
The main objectives of accounting are maintaining a complete and systematic record of all transactions and analyzing the financial position of a business.
Every individual or a business concern is interested to know the results of financial transactions and their results are ascertained through the accounting process.
A businessman can ascertain the operating results and financial position of his business at any time through Accounting.