Objectives and Functions of Accounting

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What Do You Mean by Accounting?

Accounting can be defined as the systematic process of handling all the financial transactions and business records. Accounting is a book-keeping process which records the transactions and keeps financial records of the company. The system also performs auditing, etc. This is a platform which facilitates many processes, for example, identifying, recording, measuring and providing other financial information.

Accounting is a very important procedure which holds great importance in people’s lives. Accounting assists a lot of financial procedures and other analytics that take place every day. There are specific people for performing this job and they are known as accountants. As mentioned earlier, accounting is a very important process and in addition to this, it holds a lot of objectives and functions as well.

What are the Objectives and Functions of Accounting?

The type of functioning of accounting includes the following:

  1. Recording the financial transactions and maintaining a journal to keep them all in order.

  2. It is also important to classify and separate the records and also maintain the ledger.

  3. Preparing summaries which take place for quick reviews.

  4. Accounting gives the net result of the business apart from just keeping the records.

  5. The balance sheet preparing is done to determine the financial position of the business.

  6. The analysed data and records are then used for other purposes as well.

  7. This also helps to communicate the obtained financial information to the interested parties, like the owners, suppliers, government researchers, etc.

Functions of Management Accounting

The management committee in an organization manages all kinds of decision making. This function is done to ensure that the decisions are smooth and beneficial for each one. They do an evaluation of the past records as provided by the accounting system. These are known as the managerial functions. The five managerial functions of accounting are:

  1. Forming the plans in addition to controlling the financial policies of the organization.

  2. Besides this, a budget is also prepared to estimate the total expenditure for the future activities performed in the organization.

  3. Cost Control is also devised to possibly compare the cost with work efficiency.

  4. The accounting even provides the necessary information during the evaluation of employee’s work performance.

  5. The ability of the whole procedure depends on it to check for any fraud and errors.

Functions of Accounting

Accounting affects every core of the system, this can be analysed from its varied scope, which is illustrated further: 

  1. Accounting is known as a broad and varied profession. 

  2. Studying accountancy can be applied to education and even a wider range of possible functions within a business system.

  3. One can specialize to serve their own employer better. One can also work in any industry and many departments with the performance of accounting functions. 

  4. Generally, a company needs employees working for them who know how to implement accounting principles which they can help to record and maintain the same over the long term. This will eventually improve the businesses accounting process by:

  • preparing income tax and financial statements

  • providing needed financial accounting advice to the managers for information-based decision making

  • creating or using critical accounting software programs.

  1. Some accountants make their careers in this financial sector. They apply their own ability to analyse corporate health and to deal with initial public offerings, mergers and business acquisitions. 

  2. Other types of accountants don't often engage in functions such as audits or dealing with the financial statements, but their knowledge and expertise enable them to assess an auditor’s conclusions with an educated eye and to maintain the financial controls in their business firm.

FAQ (Frequently Asked Questions)

1. What is Meant by the Book-Keeping Process?

Ans. The term bookkeeping refers to the recording of financial transactions and activities on a daily basis. This is a subset of accounting which requires the following jobs which are required to be done in order to build a financially stable business. The process of bookkeeping involves the four basic steps: 

  • Analysing the financial transactions and assigning them to specific and respective accounts. 

  • Writing original journal entries which credit and debit the appropriate accounts.

  • Posting entries to their ledger accounts.

  • Adjusting the entries at the end of each accounting period.

2. What is a Ledger?

Ans. A ledger is a book which contains accounts that are classified and summarized into information from the journals and are posted as debits and credits. The ledger contains the information which is required to prepare the financial statements. This includes the accounts for assets, liabilities, owners' equity, revenues and expenses.

Ledger is a separate record within the general ledger which is assigned to a specified asset, liability or an equity item, revenue type, or it may be an expense type. An example of a ledger account is Accounts Receivable.

3. What are Mergers and Acquisitions?

Ans. Mergers and acquisitions, abbreviated as M&A, involves the process of combining the two companies into one single company. The goal of combining these two or more businesses is to try and achieve synergy, where the whole new company will be greater than the sum of its individual parts.

A merger occurs when two separate entities combine their forces to create a new, joint organization. On the other hand, an acquisition refers to the takeover of one entity by another entity. Mergers and acquisitions may be done to expand a company's reach or gain maximum market share in an attempt to create shareholder value.