Enumerate main objectives of accounting.
Answers
Objectives of Accounting:
the objectives of accounting are:
(i)To keep a systematic record of financial transactions that affect the business enterprise.
(ii)To ascertain the profit earned or losses incurred by the business unit during a particular accounting period.
(iii) To ascertain the financial position of the business unit at the end of the accounting period.
(iv) To exercise control over business assets and properties.
(v) To facilitate business decision-making.
Answer:
Accounting is the process of identifying financial events, recording them in a journal, classifying them in their respective accounts, summarizing them in a profit and loss account and balance sheet, and communicating the results to users of the information, such as the owner, government, creditors, and investors.
Explanation:
Objectives of accounting:
(i) Maintenance of records of business transactions:
To keep complete and organized records of all business transactions The language of business transactions is accounting. Given the limitations of human memory, accounting's primary goal is to keep a "complete and systematic record of all business transactions."
(ii) Calculation of profit and loss:
To determine whether the business is profitable or not: Businesses are run to make money. Accounting determines whether a business made a profit or lost money by preparing a Profit and Loss Account or an Income Statement. Profit or loss is determined by comparing income and expenditure.
To depict the business's financial situation:
- A businessperson is also interested in determining his financial situation at the end of a given period.
- A balance sheet, which shows assets and liabilities, is prepared for this purpose.
(iii) Depiction of the financial position of the business enterprise:
Just as a doctor will feel his patient's pulse to determine whether he is in good health or not, an enterprise's financial health can be determined by looking at its balance sheet. It is financially healthy, i.e. solvent, if its assets exceed its liabilities. It would be insolvent, or financially weak, in the other case.
(iv) Providing accounting information to its users:
Provide accounting information to those who are interested Aside from the business enterprise's owner, accounting information is of interest to a variety of parties. Bankers, creditors, tax authorities, potential investors, researchers, and others fall into this category. As a result, one of accounting's goals is to make accounting information available to these parties so that they can make sound and realistic decisions. They are provided with accounting information in the form of an annual report.