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Before understanding the objectives of accounting, let us look into what accounting is. Accounting is the process of recording the financial transactions relating to a business to assess the profits/ losses and the business’s financial standing. So, accounting helps to manage, organise, summarise, and analyse any business organisation’s financials. Accounting plays an essential role in any business organisation as it helps to record all transactions and analyse the financial status of the business at the end of the financial year. Understanding the essentials of accounting can help us explain the objectives of accounting. To understand the role and functions of accounting, here is a list to define the objectives of accounting.
The Objectives of Accounting
The primary objectives of accounting include systematic maintenance of records of transactions summarising and analysing business reports to assess the financial standing of the business entity. The following are the various objectives of accounting –
Maintaining systematic financial records
One of the most important accounting objectives is that accounting helps the business organisation keep a systematic and accurate record of the day-to-day transactions, which helps to understand the working of the business, payments made, income received, etc.
To estimate and ascertain profits or losses
Recording transactions concerning revenues and expenditures helps us ascertain the profit/ loss at the end of the financial year. Ascertaining profits or losses is important to make payments, making it one of the important objectives of accounting.
Preparing financial reports to assess the financial position
Accounting involves the preparation of a balance sheet which is a record of the assets and liabilities of a business entity. This helps in the analysis of the financial position of the business organisation. Ascertaining profitability can help us understand the strengths and weaknesses of the business organisation and formulate various policies and strategies to correct the weaknesses and improve the organisation’s strengths.
Auditing of financial reports
Another objective of accounting is that it helps in understanding the financial position of a company in the form of assets, debts, profits and losses, etc. These records are made available to the auditor, who can then analyse the reports to find any discrepancies and suggest the required corrective reforms. These reports also help the higher authorities formulate plans and make rational decisions.
To forecast future payments, expenditures and budgets
Accounting helps to predict the future profitability of a business entity. This helps plan future payments, debts, expenditures and budgets accordingly. It also helps in distributing funds among different departments of the business organisation based on past allocations and profitability.
These are a few of the most important objectives of accounting. Once we understand the objectives of accounting, it becomes easier to understand the role of accounting.
Function of Accounting
Accounting functions involve the identification, recording, summarising of transactions, analysing and ascertaining the profit/losses and communication of the necessary information. Here are a few functions of accounting –
Preparation of budget and cash control
The most important role of accounting, which also helps explain the objectives of accounting, is the record of transactions to facilitate the budget and cash control preparation. Cash control is estimating a standard cost beforehand. Evaluating and comparing the standard and actual costs incurred can help us analyse and understand the efficiency of the work undertaken and the corrective measures to be applied to improve efficiency.
Prevention of errors and fraud
Accounting helps in estimating and ascertaining the profits or losses through a systematic record of all transactions. This helps prevent errors and fraud like all the transactions, including the employee reports, are recorded systematically and accurately.
Basis of evaluation of performance
Accounting acts as a basis for the evaluation of performance. It helps us ascertain whether the pre-planned goals are achieved and provides information regarding the assets and liability situation of the business, which can be beneficial to evaluate the financial position of the business organisation.
Control of fiscal policies of the business
Another important function of accounting is to provide a detailed summary of reports which ensures strong vigilance, thereby preventing mismanagement of funds and helps in the control and regulation of the fiscal policies of the business via proper allocation of the funds.
Conclusion
The objectives of accounting play an important role in every business entity. Accounting objectives class 11 primarily focuses on 2 divisions to accomplish the purposes or goals of accounting. The 2 divisions are primarily the recording of transactions done by preparing the balance sheet, income statements, etc. The Secondary division is the analysis and ascertainment of profits/losses or the financial position of the business organisation. Therefore, the objectives of accounting help in realising and achieving the overall objectives of the business organisation.
