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Objectives and Functions of Accounting

Objective & Functions of Accounting - Success Roar Classes

What are the Objectives of Accounting?

  1. To ascertain profit and loss
    • Every businessman wants to know the net results of business operations for the year.
    • To know profits or incurred losses in the business during the accounting year, a Profit & Loss Account is prepared.
    • The Trading account includes information like the total amount of sales during the year, the total amount of purchases during the year, the value of the stock at the end of the year, the net result (profit/loss) from the operating activities of the business, etc.
    • The Profit and Loss Account covers information like the expenses and revenues (other than shown in a Trading account), and the overall net result (net profit and loss) due to the activities of the business during the year. (Objectives and Functions of Accounting)
  2. To determine the financial position
    • The financial position of the business means the value of assets and liabilities on a particular date.
    • This is also important for a businessman to know what worth has been created in the business over the period of time.
    • For this purpose, a statement showing assets and liabilities and their values are prepared on a specific date which is known as the Balance Sheet.
  3. To provide information to various users
    • Users refer to those persons who are interested in the financial information of the business. Example Banks, Government, Investors, etc.
    • The financial information of business Is communicated to these users which enables them to make financial decisions.
  4. To prevent and detect errors and fraud
    • Another objective of accounting is to reduce or prevent errors and frauds.
    • Accounting provides a complete and systematic record of the assets of the company. This enables the management to implement effective control over the assets of the business.
  5. To assist the management
    • Accounting provides various financial information related to the business.
    • Based on the analysis of the above financial information, various reports are prepared which helps management in handling business operations effectively.

What are the Functions of Accounting?

  1. Maintaining complete and systematic records-
    • The main function of accounting is to keep complete and systematic records of all business transactions.
    • The different accounting principles and standards help accountants to prepare systematic, complete, and well-accepted accounting records.
  2. To provide information to various users-
    • Users refer to those parties or persons who are interested in the financial information of the business. Example Banks, Government, Investors, etc.
    • The financial information of business is communicated to these users which helps them to make financial decisions.
  3. Protecting the assets of the business-
    • Accounting provides a complete and systematic record of the assets of the company. This helps the management to implement effective control over the assets of the business.
    • This also helps in eliminating losses and frauds. (Objectives and Functions of Accounting)
  4. Providing Assistance to Management-
    • Accounting provides various financial information related to the business.
    • Based on the analysis of the above financial information, various reports are prepared which helps management in handling business operations effectively.
    • Accounting helps the management in planning, controlling, decision-making, and other works of the management.
  5. Trusteeship –
    • The trusteeship function can be seen in the company where the management of the company plays the role of the trustees of the funds of the company and the accounting helps them to control the resources properly.
  6. Compliance of Legal Needs –
    • There are various laws for ex. Companies Act, Income Tax Act, Goods, and Service Tax (GST) Act, etc. which requires submission of various statements such as Income Tax returns and GST Returns, annual accounts, etc.
    • Accounting helps the businessman to provide these informations to the various government agencies for compliance with of above Acts

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