Objectives and Functions of Accounting

Accounting exists to serve a set of clear objectives, and it performs specific functions to meet them.

Objectives of accounting

• Systematic recording of transactions — so that no transaction is left out or recorded twice, and past data can be retrieved when needed.
• Ascertainment of profit or loss — the Trading and Profit & Loss Account tells the owner whether the year's operations were profitable.
• Ascertainment of financial position — the Balance Sheet shows what the business owns (assets) and what it owes (liabilities) on a given date.
• Providing information to users — owners, management, investors, lenders, government and employees all rely on accounting reports for their own decisions.
• Protecting business assets — proper records of cash, stock, debtors and fixed assets make it harder for assets to be misused or misappropriated, and easier to detect if they are.
• Facilitating rational decision-making — accounting data is the raw material for decisions such as whether to expand, borrow, or cut costs.
• Meeting legal requirements — the Companies Act, Income Tax Act and GST law all require specified books and returns to be maintained/filed, and accounting records are the basis for these.

Functions of accounting

• Measurement — measures past performance and depicts the current financial position.
• Forecasting — historical data assists in predicting future performance and position.
• Comparison and evaluation — assesses performance against targets, past years, and other firms.
• Decision-making — supplies relevant information to management for planning and control. …