The main aim of a business firm is to earn profit from business activities. But, how can the owner know the exact profit earned by him or loss suffered by him? It is possible only if he keeps the proper records of his business transactions.

For example Mr. X started a business of trading in computers. He purchased 5 computer 25000/= each. He sold one computer for Rs.30000/= and spent Rs.6000/= on each computer as cartage, commission, packing and other incidental expenditures. But what he earned out of it ?.  He lost Rs.1000/=. How he came to know regarding the loss? It was possible only when he kept proper account records.

It is a simple example of only one transaction but when there are lot of transactions in a business firm then it is not possible to know the correct position of the firm with out keeping the perfect accounting records.

A firm makes so many transactions like sale of goods, purchase of goods, purchase of assets for official use, payment of business expenditures, deposits in banks, withdrawal from banks, payment to creditors, receiving payment from debtors etc. It is very difficult to remember exact amount and date of transactions unless, we note it down somewhere. To solve this problem, the proper accounts are being maintained. Thus, the accounting is a system in which the financial transactions are recorded in monetary terms in such a manner so that the concern person may be able to know the actual financial position of business activities at any point of time.

Therefore, the accounts are maintained due to following reasons:-

–         To know the actual assets.

–         To know the actual liabilities.

–         To know the actual expenditures.

–         To know the actual incomes.

But, there are so many other statutory requirements because of that one must maintain the proper accounts. Those requirements are summarized as follows:-

–         Income Tax

–         Sales Tax or VAT

–         Excise Duty/ Custom Duty

–         Service Tax

–         Provident Fund

–         E.S.I. (Employee’s State Insurance)

–         Labor Laws

–         Industrial Laws etc.

–         For Insurance Purpose.

–         For Loan Purpose.

–         For Credit Card etc.