Objectives and Functions of Accounting

Objectives and Functions of Accounting

Let’s now move forward to discuss about the objectives and functions of accounting.

Objectives and Functions of Accounting

The basic objective of accounting is to provide useful information to the interested users, but it can vary depending on the context and the specific needs of an organization.

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Objectives of Accounting

The primary objectives of the accounting are:

  1. Maintaining Record of Financial Transactions of Business: The primary objective of accounting is to record and document all financial transactions of a business accurately following the principles of accountancy.
  2. Providing Financial Information to Users: Accounting aims to provide relevant and reliable financial information to various users, including management, investors, creditors, and regulatory authorities. This information helps users make informed decisions about the organization’s financial performance and position.
  3. Assessing Financial Performance: Accounting enables the measurement of an organization’s financial performance by determining profit earned or loss incurred. The Income statement or Trading and Profit and Loss statement is prepared for this purpose.
  4. Facilitating Management: Accounting provides financial information that enable management to make effective decisions, effective control, budgeting and forecasting.
  5. Assessing Financial Position: The important objective of accounting is to determine financial position of organization. The Balance Sheet is prepared for this purpose which helps in determining the value of a Business.
  6. Ensuring Compliance: By following accounting principles and standards, businesses can accurately report their financial information to regulatory bodies. Thus, it helps organizations comply with legal and regulatory requirements.

Functions of Accounting

The key functions of accounting are:

  1. Recording and Maintaining Accounting Records: The primary function of accounting is to systematically recording all financial transactions and events of a business.
  2. Preparation of Financial Statements: Accounting categorizes and organizes financial transactions into various accounts, such as assets, liabilities, equity, revenues, and expenses. This process enables the preparation of financial statements like Income Statement (Profit and Loss Statement), Position Statement (Balance Sheet) that provide a comprehensive overview of the company’s financial position and performance.
  3. Facilitating Management in Decision Making: Accounting information plays an important role in decision making for both internal and external users. The accounting data helps management to assess the financial viability of projects, evaluate costs and benefits, and make strategic decisions.
  4. Meeting Compliance and Legal Requirements: Accounting ensures compliance with legal and regulatory requirements, including tax laws and financial reporting standards. Accurate and transparent financial records are essential for meeting statutory obligations, filing tax returns, and fulfilling obligations to shareholders, government authorities, and other stakeholders.
  5. Communicating the Financial Information: Accounting is considered as language of business. It enables effective communication of financial information to various users, such as investors, lenders, employees, and government agencies. Clear and concise financial reports facilitate transparency, accountability, and trust among stakeholders

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