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Memorizing every business transaction is an impossible task for any company’s management body. The best way to maintain detailed reports is by recording those transactions with their documented proofs in the book of accounts. Not only is this method the most appropriate to account transactions in business, but it also helps a company to assess the position statement and prepare income.
In the court of Jaw, accounting records are also considered as an important proof.With the help of this information provided by accounting, managing body of a company can make effective future plans and its related line of action. There are few objectives of accounting which are briefly described here.
- Proper maintenance of business transaction records
The foremost objective of accounting recognizes transactions which are financial in nature. After its identification, its transaction details are recorded in its respective book of accounts. These transactions are categorized into 5 divisions.
- Assets
- Capital
- Expenses
- Liabilities
- Revenues
Transaction reports with respect to these are put into their appropriate books. It is essential to make the book of accounts in a properly planned method so that with just a glance all the required information can be grasped from the accounts book.
- Representation of financial position
The position statement is prepared at the closing of its accounting period. Its depiction in balance sheet is made by the worth of liabilities and commodities (assets). The claim of creditors like loans, bills that are payable, net profit, claims of proprietor,and commodities of creditors, outstanding expenses,reserves,and capital comes on the liabilities side.
Numerous resources like cash at bank, various debtors, building, cash in hand, furniture, closing stock, machinery, and much more are displayed on the asset side of a balance sheet.In a business,balance sheet is compared to a mirror which can easily show you the correct liability and asset position, that too of a specific date.
- Profit and loss calculation
Calculation of profit and loss is yet another objective of accounting.With the help of the balances from ledger balance, trial balances are constructed. And with the help of trial balances, income statements are composed.When accounting period comes to an end, trading account is prepared which determines the gross profit or loss in a business. After the completion of the entire estimation process, profit and loss account is formulated for calculating its net profit or loss. So you can easily understand that accounting assesses a company’s performance in terms of its profit.
- Availing information to different groups
Nowadays companies refer themselves as institutions. Not only does owners of a company are focused on their company’s overall performance, but other members are also focused on it. The other company members include lenders, researchers, creditors, investors, workers and even government. The availability of the required information with the help of accounting makes these parties interested about company performance.
Investors, debenture holders, and lenders who had invested hefty advances in a certain company have monetary concerns regarding its safety as well as the interest on their invested capital. The assurance of their loans being secured is dependent on the company’s financial soundness.
An interest mostly towards the profit margin is seen by proprietors. A hike in remunerations and bonus is the primary concern of workers in this case. With the help of accounting, all these stated groups get their necessary information.
- Deliver productive control to a company
A company’s real performance is divulged with the help of its sales, profit and loss, production, costing involved in that production and the book value of miscellaneous assets. It is with the help of a company’s planning regarding its performance; you can compare its actual performance. Another of the ways is the comparison of it with the performance of former years.
With these comparisons difference regarding its plus points and flaws can be identified. The reasons for a company’s poor performance on being pinpointed are then removed with more effort. Therefore, accounting is used as an effective control of a company to be more productive.
Links of Previous Main Topic:-
- Book keeping
- Process of book keeping
- Accountancy
- Difference between book keeping and accountancy
- Accounting as science and art
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