Accounting is an important component of running a business since it allows organizations to keep track of their financial activities and determine their financial situation.
The fundamental objective of accounting is to determine the results of a company’s financial activities. In this article, we will go over the top 10 accounting objectives.
These accounting objectives assist firms in properly managing their financial resources and making informed decisions.
The following are the top 10 objectives of accounting:
#1. Identification and recording of transactions:
It is impossible to know the financial results of an organization without properly recording the financial transactions of the organization in the book of accounts.
Therefore, the first and foremost objective of accounting is to permanently record the financial transactions of the organization in the book of accounts. So that the transactions can be found very easily at any time if needed.
Transactions are permanently recorded through journals, ledgers, etc.
#2. Ascertainment of the operating performance of the organization:
One of the main objectives of accounting is to assess an organization’s operating performance and financial position at the end of a given period of time.
It is easy to understand financial results by preparing an income statement at the end of the year and correctly recording all of the organization’s income and expenditures.
#3. Ascertainment of financial conditions of the organization:
Another important objective of accounting is to determine the financial condition of a business, that is, to determine the amount of assets, liabilities, and ownership.
The only way to know the financial condition of the business at the end of the year is to prepare the balance sheet by keeping the accounts properly.
#4. Control expenditures:
One of the objectives of accounting is to keep expenditures in line with the company’s revenue. Since the organization’s desired outcomes can only be obtained by cost management.
Accounting aids in the monitoring of all expenditures by recording them.
#5. Provide the economic information to the concerned parties:
Another purpose of accounting is to inform the concerned parties about all the economic activities of the organization as soon as possible by preparing financial statements and reports.
Such statements and reports are used in various business decisions.
#6. Keeping the cash accounts:
At any time, every business organization wants to know the position of cash receipts, cash payments, cash in hand, and cash in the bank of the organization. Cash Book provides all the information you need at any time.
Cashbook is a permanent book for all the books of accounts. Businesses can easily identify fraud, forgery, and misappropriation of money by keeping the cash book scientifically and precisely.
#7. Control of assets and liabilities:
Every business organization continuously acquires various assets such as land, building, machinery, vehicles, etc. to run a business successfully. They take bank loans, leases, and other sources of financing for the acquisition of those assets that increase liabilities.
After a certain period of time, the company wants to know the actual position of its assets and liabilities.
Accounting helps the business to determine the actual status of its assets and liabilities through proper accounting.
On the basis of this information, the business organization can take the right steps to control the decrease in the number of assets and increase the liability.
#8. Prevent bribery, deceit, and fraud:
Only proper accounting can prevent institutional funds from being embezzled by bribery, deceit, and fraud.
As a result, by maintaining proper accounts, it is possible to both avoid and manage bribery, deceit, and fraud. As a result, one of accounting’s objectives is to avoid counterfeiting, fraud, and deceit.
#9. Settle disputes:
If there is a dispute between the different stakeholders of the company, accurate accounting records may be used as evidence in court or elsewhere.
This is impossible to do in any other way. Another goal of accounting is to settle disputes between various stakeholders and the company.
#10. Establish values and responsibility:
One of the goals of accounting is to establish values and responsibility. Accounting is important for the development of moral character.
Accounts that are kept in an appropriate manner will ensure that the values of those in charge are strengthened, as well as the responsibility of those in charge.
People become arbitrary if values and accountability are not defined. Values help to form a better character. As a result, accounting plays a critical role in the creation of values and responsibility.
Various financial records and books of accounts are also used for various needs of the company. These books and documents serve as future references.
For example, when calculating the sale price of a product, the expense of the product is taken into account; when applying for a loan from a bank or other financial institution, different accounting statements must be submitted; and so on.
Only proper accounting allows for a frugal lifestyle, effective use of organizational resources, cost management, waste reduction, and so on.
You can also read:
- How does accounting create value and accountability?
- Why is accounting called the language of modern business?
- What is the importance of accounting?
