Five (5) objectives of financial accounting.

Financial accounting is the process of summarizing financial information in order to prepare entity financial statements. Financial accounting is thus the manner in which an entity communicate financial information namely its position, cash flow and performance to the outside world.

The following are objectives of accounting:

  • To ascertain profitability: With the help of accounting, we can evaluate the profits and losses incurred during a specific accounting period. With the help of statement of profit and loss we can easily determine the profit or loss of the entity;
  • To assist in decision making: To take decision for the future, one requires accurate financial statements. One of the main objectives of accounting to enable user of financial statements to take right decision at right time. Thus, accounting gives you the platform to plan for the future with the help of past records;
  • To fulfill compliance of law:business entities such as companies, trust and societies are being run and governed according to different legislative acts. Similarly, different taxation laws (direct/indirect taxes) are also applicable to every business house. Everyone has to keep and maintain different types of accounts and needs as prescribed by corresponding laws of the land. Accounting helps in a running business in compliance with the law;
  • To keep systematic records: accounting is done to keep systematic record of financial transactions. The primary objective of of accounting is to help us collect financial data and to record it systematically to derive correct and useful results of financial statements.
  • To ascertain the financial position of the business: A statement of financial position indicates the financial position of the entity as at particular date. A properly drawn statement of financial position gives us an indication of the class and value of assets, the nature and value of liability and also the capital position of the entity.

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