Accounting is the action or procedure of maintenance financial accounts. It is a procedure of identifying the proceedings of financial nature, recording them in the journal, classifying in their particular accounts and abbreviation them in profit and loss account and balance sheet and communicating results to users of such information, viz. owner, government, creditor, investors, etc.
Objectives of Accounting:
Determining profit earned or loss incurred- In order to decide the remaining result at the end of an accounting period, we need to compute profit or loss. For this reason trading and profit and loss account are organized. It gives in sequence regarding how much of goods have been purchased and sold, expenses incurred and amount earned throughout a year.
Detecting and preventing frauds and errors- It is essential to identify and avoid fraud and errors, misconduct and depletion of the finance. Systematic recording helps in the simple finding and modification of frauds, errors and inefficiencies, if any.
Ascertaining financial position of the firm- Ascertaining profit earned or loss incurred is not adequate; administrator also interested in knowing the economic position of his/her firm, i.e. the value of the assets, amount of liabilities owed, net enhance or decrease in his/her assets. This reason is served by preparing the balance sheet that facilitates in ascertaining the right financial position of the business.
Recording business transactions systematically- It is essential to preserve systematic records of each business contract, as it is beyond human capacities to keep in mind such huge number of transactions. Skipping the record of any one of the transactions may lead to erroneous and defective results.
Communicating accounting information to various users- The significant step in the accounting procedure is to converse financial and accounting information to various users including both internal and external users like owners, management, government, labor, tax authorities, etc.
Assisting management- Efficient accounting helps the management in valuable decision making, efficient control on cash management policies, preparing budget and forecasting, etc.
Assessing the progress of the business- Accounting helps in assessing the development of business from year to year, as accounting facilitates the comparison both inter-firm as well as intra-firm.