What is Accounting ?
Today In This Article We will Discuss about What is The Objectives For Accounting in Detail, Step in the Accounting Cycle and
A company’s accounting system is the method by which the company records, organizes, and understands its financial information.
It’s helpful to think of accounting as a large machine into which you feed raw financial information—records of all your business activities, tax returns, financial projections, and so on—and which then produces an easily understandable tale about the financial health of your company.
Accounting shows you whether or not your firm is profitable, how much cash it has on hand, what the current worth of your company’s assets and obligations is, and which areas of your company are genuinely profitable.
When you record a business transaction—any activity or occurrence that affects the money of your company into your company’s ledger, you are officially beginning the process of accounting.
The practice of recording company transactions in this manner is known as bookkeeping. Bookkeeping is the first step in what accountants term the “accounting cycle,” which is a procedure designed to take in raw financial information and spit out financial reports that are both accurate and consistent in their results.
There are six major steps in the accounting cycle:
- Analyze and keep track of all transactions (looking over invoices, bank statements, etc.)
- Transactions should be posted to the ledger (according to the rules of double-entry accounting)
- Prepare an unadjusted trial balance (which entails identifying all of your company’s accounts and determining the balances of those accounts).
- Prepare the adjusting entries for the period’s conclusion at the beginning of the period
- Prepare a trial balance that has been altered.
- Prepare financial statements for the company.
Accounting is divided into several categories.
- Accounting is the financial sector
Everyone in your firm, including investors, lenders, government agencies, auditors, possible buyers, and other interested parties will receive financial statements each year that they may use to understand more about your company’s financial health.
- Accounting for management purposes
The financial statements generated by managerial accounting are only intended for internal consumption. It is considerably more common for them to be generated on a quarterly or monthly basis, rather than every few years.
If your company ever grows to the point where you need to hire an accountant on a full-time basis, management accounting will occupy the majority of its time. You’ll be paying them to produce reports that provide regular updates on the financial health of the company, as well as to assist you in interpreting the information in those reports.
- Accounting for tax purposes
The practice of tax accounting is defined as the process by which your accountant makes advice to you on how to get the most out of your tax return.
The Internal Revenue Service (IRS) regulates tax accounting, and the IRS has a legal obligation to ensure that your tax accounting is following the Internal Revenue Code (IRC) (IRC).
- Cost accounting
The process of cost accounting occurs if you are attempting to figure out how to raise your profit margin or determining whether or not raising pricing is a good idea.
Analysis of all expenses connected with generating an output (whether it is a physical product or a service) to make better decisions regarding pricing, spending, and inventory is what cost accounting is all about.
- Accounting based on credit
Essentially, credit accounting is the process of assessing all of a company’s unpaid bills and liabilities to ensure that the company’s cash isn’t always caught up in paying for those bills and liabilities.
Credit accounting can be one of the most difficult types of accounting to master because it often entails telling someone something they don’t want to hear, which can be quite challenging (like your accountant telling you that you should be borrowing less.)
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Intangible Assets Meaning ? Example and Types of Intangible Assets ?
Objectives For Accounting
Accounting’s objectives in any organization are to systematically record transactions, categorize and analyze them, generate financial statements, assess the financial status, and assist in decision making by providing financial data and information about the business. The primary Objectives for accounting is to identify the outcomes of a business’s financial activities to maximize profits.
It has been determined that accounting is useful for 13 different purposes.
1. Transactions are identified and recorded in the system.
The fundamental Objectives of accounting is to detect financial transactions and to record them methodically in the books of accounts, which is known as bookkeeping. As a result, the genuine character of each transaction can be determined without the need for extensive mental effort.
To achieve this goal, transactions are initially recorded in both a general and a particular journal, and later on, multiple accounts are maintained in the ledger permanently.
2. Determination of the outcome.
The operating results of a business concern at the end of a specific period are of interest to every company concerned.
The amount of profit or loss made by a business concern for a specific period can be determined by compiling an income statement with the use of ledger account balances that are of a revenue-generating kind.
A non-trading company’s revenue surplus or deficit for a given time can also be determined by creating an income and expenditure account or statement for the period under consideration.
3. Ascertaining financial affairs
Determining debts and liabilities, as well as property and assets, or the total financial affairs of an organization at a particular time is another important Objectives of accounting.
Creating a balance sheet allows you to see what the financial situation of a company is at a specific point in time. Essentially, the balance sheet is the statement of a company’s assets and liabilities as of a specific date.
4. Keeping track of the money in your Checking account
The cash book is one of the most important volumes in the books of accounts. This book keeps track of all of the cash that is received and paid out in cash. This book contains information on a large number of daily cash receipts and payments, as well as cash in hand and cash in the bank.
By maintaining a cash book scientifically and accurately, fraud, forgeries, and theft of funds can be minimized.
5. Possession and control of assets and liabilities
Business owners must acquire various assets to run their companies successfully. These assets include land, buildings, and machinery.
He will have to deal with a variety of obligations and liabilities, such as accounts payable, notes payable, loans, bank overdrafts, and so on, in addition to the acquisition of assets.
It is possible to determine the true position of these debts-liabilities, property, and assets by maintaining accurate records of transactions and transactions.
A businessperson can take the necessary actions to keep the number of assets decreasing and the number of liabilities increasing under control.
6. Maintaining tight control over money defalcation and costs
Accounting’s primary objectives are the prevention of money defalcation through fraud and forgery, as well as the control of the company’s operating costs.
When accounts are managed scientifically, it becomes easier to prevent money defalcation and maintain cost management.
7. Providing economic data
Another noble goal of accounting is to offer all relevant economic information to the parties concerned to prepare financial statements and reports, among other things, on time.
8. Assisting in the tax-fixing process
Accounts prepared based on generally accepted accounting standards are regarded as reliable by the income tax and VAT authorities, allowing for the calculation and settlement of tax and VAT to be completed quickly and easily.
9. The formulation and evaluation of public policy
The purpose of accounting is to assist management in determining and evaluating management policies to run the business successfully. This is accomplished by providing necessary information, interpreting and analyzing financial statements, and providing necessary information.
10. Checking the accuracy of accounts’ arithmetical calculations
One of the primary goals of scientific accounting procedures is to ensure that financial records have been maintained properly. By preparing a trial balance, you may ensure that the accounts stored in the ledger are accurate in terms of arithmetic.
The trial balance agreement serves as verification of the arithmetical accuracy of the accounts in question. The advantage of taking loans is that, due to a lack of available capital, borrowing money from outside sources is considered required to run a firm.
Loan providers are not inclined to make a loan to a company unless they are aware of the company’s financial situation. Financial statements of a business concern are used to determine the solvency or debt repayment capability of the company concerned in the question.
Accounting Standards : Limitations of Accounting Standards
Trading Account : Format for Trading Account
Sundry Creditors and Sundry Debtors Meaning with Example
Financial Statement : Objectives of Financial Statement
11. Acceptability in the eyes of others
Banks and other financial institutions are interested in knowing the precise financial situation of a business concern to issue loans to it.
A variety of causes may lead the government or other authorities to request information on the financial position of a business concern on the other hand.
In these instances, the accounts that have been managed in a disciplined manner become readily acceptable to the organizations or authorities who are interested.
12. Establishing values and holding people accountable
The purpose of accounting records kept acceptably is to instill higher values in individuals and organizations, thereby raising awareness about the importance of preventing money laundering, misappropriation of funds, and cost control through the use of transparency and accountability procedures.
13. Complying with legal obligations and prohibitions
Because all types of commercial organizations are required to adhere to certain legal obligations and restrictions, they are required to keep correct financial records.
Partnership law, income tax legislation, and company law, among other things, impose obligations on business organizations to keep their books and records properly.
One of the most important goals of accounting is to keep a thorough and systematic record of all transactions while also analyzing the financial status of a corporation, among other things.
Every individual or business organization is interested in knowing the outcomes of financial transactions, and the outcomes of financial transactions are determined through the accounting process.
Accounting allows a business owner to obtain real-time information on the operating outcomes and financial position of his or her company.
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