In addition, it reveals the volume of sales, and the nature of the various types of expenses, depending upon how expense information is aggregated. This objective is served by the balance sheet or position statement. Providing economic data Another noble object of Accounting is to provide the concerned parties with all economic information preparing and reports etc. The purpose of accounting can be summarized in the following manner: 1. Under accrual accounting, even though employees may be paid in the next accounting period for work performed near the end of the present accounting period, the expense still is recorded in the current period since the current period is when the expense was incurred. Providing information to tax authorities and other government agencies. Any information that could affect the decisions of users should be included in the financial reports.
An increase in owners equity would be credited more funds entrusted in the business and a decrease debited less funds entrusted in the business. It enables the trader to compare the different items, such as sales, purchases, opening stock and closing stock of one period with similar items of preceding period and the trader may thus know whether his business is progressing or not. However, there are different kinds of financial statements for different purposes. Ascertain the results of operations during a period 2. Win- win situation for Daisy Ltd and sponsorship. Every individual or a business concern is interested to know the results of financial transactions and their results are ascertained through the accounting process. The amount of profit or loss for a particular period of a business concern can be ascertained by preparing income statement with the help of ledger account balances of revenue nature.
Financial accountants produce financial statements based on the accounting standards in a given jurisdiction. With this end in view the transactions are primarily recorded in and later on permanently various accounts are kept in the. Financial statement of a business concern reflects the solvency or loan repayment capability of that concern. This is possible on account of accounting supplying the information to the manager or the proprietor. Maintaining a control over assets 4.
The transactions being recorded in the most scientific and systematic way gives the most reliable information of business. Cash Method Many small businesses utilize an accounting system that recognizes revenue and expenses on a cash basis, meaning that neither revenue nor expenses are recognized until the cash associated with them actually is received. It may make profit in some of these transactions while it may make losses in some other transactions. The resulting amount is called net income. An economic entity is a separately identifiable organization which makes use of resources to achieve its goals and objectives.
Investors will give money to the firm only if they have reasonable assurance that the firm will be able to generate enough profit. Treatment of expenses and revenues Finally, the treatment of expenses and. The important among them are as follows: According to Smith and Ashburne, Accounting is the science of recording and classifying business transactions and events, primarily of a financial character and the art of making significant summaries, analysis and interpretations of these transactions and events and communicating results to persons who must take decisions or form judgement. Community living around the areas in which the company is serving has interest in the job creation and fair operations by the company Epstein, 2010. Financial accounting does not provide timely information. Whenever the organization commits any resource of monetary value either within the firm or outside the firm, a record is made.
Helps in Motivating Employees and Others. This will help the management in interpreting the financial data, evaluating alternative courses of action available and guiding the management in taking decisions and having the most desired financial results. It is the ultimate result of this system that every debit must have corresponding credit and vice versa and on any particular day the total of the debit entries and the credit entries on the various accounts must be equal. An economic entity may be a business entity operating primarily to generate profit, or a non-profit entity carrying out charitable and not-for-profit operations. Investors may predict future dividends based on the profits disclosed in the Financial Statements.
To ascertain the operating results of the enterprise; 2. Customers use Financial Statements to assess whether a supplier has the resources to ensure the steady supply of goods in the future. Accountants evaluate and analyze the information, making sense out of the numbers. Fraud, forgery, and misappropriation of money are reduced by keeping cash book scientifically and accurately. The information is stored, summarized and used for many different purposes. The first table was paid out in cash however the second one was bought in credit terms.
On the other hand, government or other authorities may also ask about the financial position of a business concern for various reasons. Ethics and standards in accounting were originally applied to protect the public from unscrupulous corporations and the accountants who hide or misrepresent information. Keeping accounts of cash is a prominent book of the books of accounts. Her writing highlights include publishing articles about music, business, gardening and home organization. The purpose of this function is to enable these parties to have better understanding of the business and take sound and realistic economic decisions. Although each statement serves a particular objective but all these statements should not be observed in isolation as they are interconnected and in order to get the full impression of the business one must look at them in totality or as a whole instead of considering them separately.