Accounting in a very simple sense is maintaining a record of varied activities. Thus, Accounting is some things that are used almost by everyone in their daily lives. In our lifestyle, we maintain a record of varied transactions or activities. The Main Objectives of Accounting are as follows
Objectives of Accounting
Recording Business Transactions Systematically: Accounting aims at recording a huge number of business transactions in the books of accounts in a systematic and organized manner. This systematic record of transactions helps in eliminating the chances of errors and frauds in the business that can take place while carrying out business activities.
Determining Profit or Loss: Every business is curious about knowing its net leads in terms of profits or losses for a specific accounting period. It is ascertained by preparing the income statements for an accounting period. Income statements include Trading Account and Profit and Loss Account. These statements record various items of revenues and expenses of the business. The difference between revenues and expenses is considered profit or loss during the year.
Assessment of Financial Position: Determining only the profits or losses from the business activities is not enough. It is also very important for a business to know about its financial position i.e. strengths and weaknesses of the business. This can be easily assessed by preparing a Balance Sheet at the end of an accounting period. A Balance Sheet is a statement showing various assets and liabilities of a business prepared for a particular accounting period.
Assistance to Management: One of the important objectives of accounting is to assist the management by providing them with vital and relevant information. Management uses this information for their effective decision making, formulating
plans, efficient control of business activities, etc.
Assessment of Progress of Business: Accounting helps in comparing the results of two or more periods. This successively helps in assessing the trend of growth and progress of the business.
Detection and Prevention of Errors and Frauds: there’s always an opportunity for errors and frauds within the business while completing its activities. The chances of their occurrence are minimized to a great extent by maintaining a systematic record of various business transactions.
Communicating Accounting Information: a crucial step within the accounting process is to speak the financial and accounting information to its various users including both internal and external users. This assists the users to know and interpret the data in a meaningful and appropriate manner with no ambiguity.
Also, Read What is Accounting?