Accounting should be so designed as the meet these New objectives also. The management information system should be built in while designing the accounting system.
Thus, the Need and Objectives of Accounting 1. Systematic recording of transactions 2. Determination of profit and loss 3. Preparation of Tax Returns 4. Providing Necessary information to financial institution 5. The depiction of Financial Position 6. Effective Control over Business 7. Providing information to Interested Parties.
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Need and Objectives of Accounting
The Need and objectives of accounting can be given as follows:
1. Systematic Recording of Transactions
The first objective of accounting is to record the business transactions and events by proper classification and book-keeping in proper books to show assets liabilities capital and profit and loss.
2. Determination of Profit and Loss
Business Transactions are done for Earning Profits. Every businessman wants to know the results of transactions done in a specific period. For these, we prepare a profit and loss account.
Thus, Excess of income over Expenditure shows Profit for the period and if Expenditure is more than income then there is a loss.
Related: Top 10 Best Qualities of an Ideal Financial Statement (With Examples).
3. Preparation of Tax Returns
One of the main objectives of Accounting is to provide the information for filling up the tax Returns of-
- income tax
- wealth tax
- Sales tax
- value-added tax
- tax on dividends
- exercise duty
- import-export duties
- export incentive etc.
Thus, the Assessment of tax is done on the Basis of Financial Statements and Vouchers.
4. Providing Necessary information to Financial institution
If a Businessman Requires money from the financial institution, Much More information Regarding business is to be given to these institutions.\
Such as previous years’ Sells, stock position, profitability, and financial position.
Related: Types or Sub-fields of Accounting.
5. The depiction of Financial Position
Every Businessman wants to know the position of his invested money.
The balance sheet is the statement of Assets and liabilities of the business at a particular point of the time and helps in an Ascertaining the financial health of the business. Need and Objectives of Accounting.
6. Effective Control over the Business
I want to tell you how to do effective control over the business.
Accounting provides the actual data of Production Cost, Sales, Expenses, Profit and Loss of the business.
The comparison between budgeted data and actual data and the data of other competitive firms can be done.
Generally, variances of the Business Activities are known by this process and to remove the various Reformative Action can be taken by this effective control over the business is possible.
Related: What is the Process of Marketing Control? (Step by Step).
7. Providing information to Interested Parties
One of the objects of Accounting is to provide information to creditors, employees, present and future investors, Researchers, and Society.
The interest of the loan givers and the investors is in the Safety of their investment and in getting interested and Dividend the interest of the Employees lies in their wages bonus and permanency.
Read More: Financial Statements: Meaning Nature And Objectives (Explained).
8. Others
Accounting information should be available for the preparation of budget and standard for 1. variance Analysis 2. Cost Control and 3. Decision Making.
So, if the Accounts are Computerized it will give Accurate data at the Earliest time for taking corrective action.
Generally, business houses are publishing Fund Flow Statement, Cash Flow Statement, Inflation Accounting, and Human resources accounting.
Thus, now you know The needs and Objectives of Accounting.
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