4 Objectives of Accounting (with diagram)

Here we detail about the four important objectives of accounting.

Objectives of Accounting

1. Systematic Recording of Business Transactions:

A systematic and complete record helps the management to receive any retrieve information easily and in time. However, in every business there are numerous business transactions and it is not possible for the management to keep in their mind all business transactions. Accounting records all business transactions in books of accounts in such a manner that intended users can use the information for different decision making purposes.

2. Ascertainment of Results:

The main purpose of any business is to earn profit. For the ascertainment of profit earned or loss sustained by the business enterprise, all incomes and expenses are to be worked out and presented in a separate statement which is called Manufacturing, Trading and Profit & Loss Account.

When total expenses are less than the total income of the business concerned, it results in ‘profit’ and when total expenses exceed total income, it leads to ‘loss’. This information can be used for taking effective measures for cost control.

3. Ascertainment of Financial Position:

The aim of showing financial position can be achieved by preparing Balance Sheet of the business enterprise. Balance Sheet is a statement of assets and liabilities. The resources owned by an enterprise (Assets) and claims against such resources (Liabilities) are shown in the Balance Sheet.

4. Communicating Information to Various Users:

In addition to the management, there are a number of other users who may be interested in knowing the information about the financial soundness and the profitability of the enterprise. For example, shareholders are interested to know the amount of dividend declared by the enterprise or earning per share, lenders are interested in the safety of their loan and interest paying capacity of the business etc. Accounting information is also required by different types of users (internal or external), who may need the same for decision making.

In this connection, accounting helps to provide relevant information to all the interested users. Annual Reports, Cash Flow Statements, Graphs and Charts are the various means which can be used to communicate the relevant information to intended users.

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