what is a objectives of accounting
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Answer:
➡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.
Explanation:
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Key objectives of accounting are summarized below.
1. Recording
The fundamental role of accounting is to maintain a systematic, complete, accurate and permanent record of all transactions of a business which could be retrieved and reviewed whenever necessary.
A reliable financial record is the backbone of any accounting system without which all other objectives of accounting will be compromised.
2. Planning
Organizations need to plan how they intend to allocate their limited resources (e.g. cash, labor, materials, machinery and equipment) towards competing needs in the future. An effective way of doing so is by using various forms of budgets.
Budgeting is a major component of managerial accounting. Budgets enable organizations to plan ahead by anticipating business needs and resources. Budgeting helps in the coordination of different segments of an organization.
3. Decision
Accounting helps managers in making a range of business decisions and developing policies to make the organizational processes more efficient. Examples of management decisions that are based on accounting information include:
How much price should be charged for products and services to achieve maximum profit;
Which products should be produced in case of shortage of resources such as cash, labor or material in order to maximize profit;
Whether a business needs to acquire financing;
Whether an business should invest in a business opportunity;
Whether a business should discontinue a product that is under-performing;
Whether a business should offer credit to a certain customer.
4. Performance
Accountancy helps in determining how well a business is performing by summarizing the financial information into quantifiable measures (e.g. sales revenue, profit, expenses, etc.).
It is important for organizations to have a reliable source of measuring their key performance indicators so they could improve by comparing themselves against their past performance as well as against competitors.
5. Position
Financial statements show the financial position of a business. Financial position reflects the financial condition of a business at that time and shows for example:
How much capital has been invested in the business
How have the funds been utilized in the business
The cumulative profit or loss of the business
How much the business owes to others (i.e. liabilities)
The amount of cash, inventory, machinery and other assets owned by the business
6. Liquidity
Mismanagement of cash is often the reason for failure in many businesses. Accounting helps businesses in determining how much cash and other liquid resources are at its disposal to pay for its financial commitments. This information is necessary for working capital management and helps organizations to reduce the risk of bankruptcy through the timely detection of financial bottlenecks.