Accounting can be defined as the art of recording, classifying and summarizing, in a significant way, plus in terms of money, transactions and events that are, in part at least, of a financial nature and analyzing the results thereof. Accounting cares about the analysis and interpretation of the recorded accounting information.
Following are the objectives of accounting:
To keep accounting records
There shouldn’t be doubt that written records or information is definitely superior to the information based on memory. Since only written records can be utilized by the people concerned about accounting information. In addition, the massive quantity of transactions in nearly every kind of business organisation cannot be simply kept in human theory.
To ascertain the profit or loss
This is achieved by preparing profit and loss account at regular intervals, say at the end of each accounting period. A company may make several transactions daily. The result of all these transactions must be collected over a duration of time. You can make daily, weekly and monthly reports which gives information to the organization about how it is carrying out its activities. Accounting serves this objective by offering regular financial documents that really help the company to adjust its operations accordingly.
To calculate the financial position
The financial position of a company could be determined by preparing the balance sheet on a specific date.
To communicate the accounting information
The accounting information needs to be disseminated to various persons like creditors, bankers, investors, government, etc.
To provide additional information
Accounting must provide additional information for research purposes by making special disclosures.
To prove Credit worthiness
Companies require resources for their working. They don’t have any capital stock available and require them from investors. Investors will only give funds to the organization if they have confidence that the company is likely to produce enough profit. Previous accounting records help in proving this. A myriad of investors from banks to shareholders require past accounting details before they trust the management with their money.
To aid logical decision making
Nowadays accounting has taken upon itself the job of collecting, evaluation and reporting of information to the required levels of authority in order to aid rational decision making.
To Efficiently Utilize the Resources
Companies can also carry out internal analysis by making use of accounting data. Accounting records provide the details to the company about which resources were dedicated to which activity and at what time. This information also summarize the return which was received from these activities. Management can then evaluate past behavior and draw lessons about how exactly they can performed better and make use of resources more effectively.
To safeguard business assets
Accounting provides safety to business assets from unjustified and unnecessary use. This is possible because of accounting offering the information to the manager.
To help in Forecasts
Accounting helps the management to forecast. Costs and revenue growths could very well be forecasted after significant previous data has been gathered. The assumption made is that the organization is going to act exactly as it has done in history. Hence, professionals can make fair assumptions in regards to the long term potential of the company.