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Objectives of Accounting

  • Systematic recording of transactions: The basic objective of accounting is to systematically record the financial aspects of business transactions, classify and summarise the same for preparation of financial statements and their analysis, interpretation and communication. This is also called book-keeping which involves recording in Journal, posting in Ledger and preparation of Trial Balance.
  • Ascertain the financial performance of the business: One of the objectives of accounting is to measure the financial performance of an enterprise. An entity prepares Manufacturing, Trading and Profit and Loss Account to know the results of the business operations for a particular period of time. If revenues exceed expenses, then it is said that the business is running profitably, but if expenses exceed revenue, then it can be said that the business is running under losses.
  • Ascertain the financial position of the business: An entity would want to know what it owes (liability) and what it owns (asset) on a particular date to determine the financial health of the business. This requires preparation of Position Statement, i.e., the Balance Sheet.
  • Communicate information to the users for rational decision making: Accounting is a ‘language of business’ which communicates the financial results of an enterprise to various internal and external users by preparing Financial Reports on a regular basis. The communication of information helps users in rational decision-making.

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