In order to know about the objective and functions of accounting, it is necessary to know what accounting means. Once you have a fair idea about it we can discuss the objectives and functions of accounting in depth.
Accounting is a process through which one can easily handle, record, summarize, report and analyze the financial transactions. For a business to sustain, accounting holds a very important place, so to have a better understanding here is the list of functions and objectives related to accounting:
Functions of Accounting
Before knowing the functions of accounting you should have a fair knowledge about the role of accounting. The key role of accounting is to deliver relevant financial data to the owner or stakeholder. In addition to this, it helps to make correct decisions. There are 2 kinds of the accounting function and they are:
Historical function in accounting means keeping the accurate past transactional record of the business. To conduct this function you need to follow the below steps:
- Recording and managing journal of all monetary transactions
- Classifying the records in different ledgers
- Summaries for hassle-free reviews
- Final accounts preparation to know the financial position of the business
- Communicating financial information to the prospective sectors such as shareholder, researchers, government, suppliers etc.
In a business, it is the responsibility of the finance managers to take decisions. So to make smooth decisions and to ensure accurate results they analyze the records of previous reports. Here are the six accounting managerial functions:
- Forming Plans
- Controlling financial policies
- Preparation of budget to obtain an approximate value of future expenditure.
- Controlling the cost by comparing cost and work efficiency
- Evaluating the performance of employees
- Analyzing errors and mistakes in the past record to make accurate reports
Objectives of Accounting
Accounting function caters the objectives of accounting. Here is the list of objectives of accounting:
- The first and foremost objective of accounting is to provide a true and fair financial position of the company
- Accounting systematically manages the transactional record and other financial details.
- Through accounting, one can easily get a fair idea about the probability of profit or loss in the nearer future.
- It provides assistance to the management to make the accurate decision
- Helps in evaluating the work efficiency and performance of employees
- It acts as a communicating medium to the user as they can have the accounting data of the company
- Last but not least accounting helps in avoiding frauds and prevent uncertain risks
- Accounting helps in identifying the gaps between the past and the current performance of the company
Q: What is accounting?
Ans. Accounting is a process through which a person can record, summarize and analyze the monetary transaction. Further, accounting helps the user to identify whether the company is earning a profit or not.
Q: What are the fundamentals of accounting?
Ans. Accounting is based on the ALOE, do not worry we are not talking about a plant but an abbreviated form of the following things:
- A = Assets
- L = Liabilities
- OE = Owner’s Equity