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| Meaning of Accounting and Objective of Accounting |
What are the Meanings of Accounting and Objective of Accounting?
Meaning of Accounting
American institute of Certified Public Accountants (AICPA) which defines accounting as “the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part at least of a Financial character and interpreting the results thereof”.
American Accounting Association defines accounting as “the process of identifying, measuring and communication economic information to permit informed judgments and decision by users of the information.”
As per the modern accounting system the definition of the American Accounting Association is acceptable because this may be considered as a good definition because of its main focus on accounting as an aid to decision making which is very helpful for the management.
Objective of Accounting
1. Keeping a systematic record
We know that who are doing business and it is very hard to remember all transactions to keep in mind, for example, we purchased of some items of any particular rate, and these items sold the same with adding of particular margin and we know that without recording of above transaction we cannot calculate our margin to sell to our customer.
So, we required to record of all of those transactions with the help of Accounting we can promptly recording all the business transactions which would be purchase or sale or any type of incurred expenditure in the books of account.
2. To ascertain the result of the Operation
With the help of Accounting, we came to know the status of our business i.e. Profit earned or getting loss in operation in the business during the particular period and the business entity prepares their financial statement either it would be Trading and Profit and Loss Account or Income and Expenditure account to came to know what profit they earned or loss of particular period.
3. To determine the financial position of the business
Any business entity after getting to know the earned profit of their business with the help of their Profit and Loss accounts, the entity or business also wants to know the financial position of their business, and it would become to know by Balance Sheet of the particular period.
With the help of a Balance sheet business entity or businessman came to know the financial strength of the business. We can say that Financial statements are barometers of the health of business any entity.
4. To monitor the liquidity position of the business
With the help of Financial statement, we came to know that how the business entity obtains and spend this would say that Cash flow and outflow of a particular period and it also provides the information regarding borrowing or business entity liability with the help of this management get an idea how to reduce liability.
It also provides information regarding capital transactions and also helps to come to know what factors that may affect a business entity’s liquidity and solvency.
5. To Safeguard the business properties
Accounting also helps to safeguard the business properties, now the question has come to our mind, how it would be, so the answer is simple with the help of accounting we keep the recording of every business-related transaction in our books of accounts with supporting documents so that nobody can claim that these assets belong with him.
6. To Facilitate rational decision making
From a particular period of time, with the help of accounting, we prepared financial statements that show the business entity’s strength which would help to make a rational decision and what steps should be taken in respect of the business.
7. To satisfy the requirements of the law
We know that how many types of organization is going on our country, such as Private Limited Company, Societies, NGO, Public Trust all of them have to compulsory required to maintain accounts as per the law governing their operations such as Companies Act, Societies Act, and Public Trust, etc and adding this maintain of accounts is also compulsory under the GST and Income Tax Act.