Objectives of Accounting

Accounting for business can be compared to food and water for human body, just like food and water are necessary for the survival of human body similarly accounting is necessary for the survival of business and hence any company cannot take accounting for granted. Accounting has many important objectives, let’s look at some of the important accounting objectives –

Accounting Objectives

  1. The first and foremost objective of accounting is to record business transactions which happen daily and hence whether its payment of salary to workers or sales made by the company or payment of rent for the premises or receipt of interest on investments made by the company all transactions will be recorded in the books of the account and any lapse in recording of transactions or omission of any transactions can lead to error and present wrong information to the person looking at accounting records.
  2. Another objective of accounting is to determine whether company has made profit or loss for the financial year, because any company doing business would want to know the result of the hard work put in by the company and if company has made profits than its good and if the company has made losses than company needs to introspect the reasons for making losses.
  3. Another objective of accounting is to prevent and find out if someone has committed fraud because many times fraud happens and management get to know after many years but with the help of accountancy management can detect frauds early which in turn will help the company in saving money because if fraud had not been detected then it would have kept going for many years resulting in financial loss for the company.
  4. Accounting information is used not only by the top management but by many external parties like creditors, banks, shareholders and so on and accountancy by presenting the information to these parties perform the important objective of maintaining transparency between the company and the interested external parties.
  5. It also performs the important objective of enabling the management of the company to assess the financial position of the company by estimating important aspects like net worth of the company, net sales of the company, total value of assets etc….., and also it helps the company in comparing its own performance with peer companies which are in the same industry so as to give a fair idea about the company’s performance and its standing in the industry.

As one can see from the above that accounting has many important objectives and that is the reason why accounting cannot be ignored by any company anywhere in the world.

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