The American Accounting Association Committee defines the accounting as the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.
The Accounting Principles Board of the American Institute of Certified Public Accountants (AICPA) clarifies the function of accounting is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions.
Keeping in view the above definitions of accounting, we can define the followings main important objectives of accounting:-
- Most basic objective of accounting is to maintain all the business transactions in proper way. If every transaction is recorded in systematic manner then there is no chance of misuse of business property. For example: if an employee sells some goods without the sale bill and keeps the cash with him, he can be caught immediately when the stock is counted.
- Every businessman would like to know the net results of his business activities. After a certain period, he would like to have an idea of profit or loss from the business activities. The actual profit or loss can be ascertained only if the proper records of income or expenditure are kept.
- By preparation of balance sheet, a business man will know the actual assets available in business and actual liabilities of business. Balance sheet shows the correct financial position of the firm on a particular date. It shows the sundry debtors, loans and advance given, fixed assets, bank and cash balance, capital employed, sundry creditors, loans to be repaid by firm, bank overdrafts and other liabilities.
- Other than a businessman there are so many other persons who will be interested to know the real financial position of the firm. For example Income tax authorities, the person who gives the loan to the firm, the creditors before selling the goods to firm, insurance companies, banks, shareholders and employees of the firm etc.
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