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Financial Accounting

Notes public are included. The financial statements are supplied to the external users for the necessary
information. In brief, following are the objectives of accounting:
1. To maintain the systematic records of the business: The primary objective of the accounting
is to maintain the records of all transactions of the business. As the memory of human
being is very limited and short, it would be very difficult to remember all the transactions
especially if there is a huge amount of transaction. So it is very necessary to record all
business transactions properly to determine the amount of profit or loss and the financial
position of the business on a particular date.
2. To ascertain the profit or loss of the business: The main objective of the business is to earn
a profit. Exact profit can be ascertained with the help of financial accounting which helps
to determine the net profit or loss of the business over a period. For the determination of
the amount of profit or loss, a trading and profit and loss account is prepared at the end of
a period. If there is excess of revenue for a period over the expenses incurred to earn that
revenue, it is said to be a profit. And if there is excess of expenses over the revenue, it is
said to be a loss. In the case of profit the management can take the decisions relating to
selling price and output etc. In the case of loss, the causes of such a loss are investigated and
remedial action is taken by the management.
3. To present the financial position of the business: The objective of the accounting is not
only recording of the financial transactions of the business and determination of profit or
loss but also to present the financial position of the business. To present the financial
position, financial accounting helps in the preparation of balance sheet. Balance sheet is
the statement of assets and liabilities of the business. It also gives the information about
the borrowed capital as well as owned capital along with different assets such as fixed
assets, current assets and miscellaneous. Balance sheet is the reflector of the financial
position of a business (solvency and insolvency).
4. To provide the financial information to the various users: One more objective of the
accounting is to provide the required financial information to the different users - internal
as well as external users. Internal users of the financial statements are owners, shareholders,
management and external users of the financial statements are debenture holders, creditors,
investors, employees, government, etc.

5. For Decision Making: These days accounting has taken upon itself the task of collection,
analysis and reporting of information at the required points of time to the required levels
of authority in order to facilitate rational decision-making.
1.1.3 Need of Financial Accounting

A well known author of Accounting, [Prof. R.R. Gupta, Principal, Poddar College, Nawalgarh
(Rajasthan)] wrote in …..”First write/record before one delivers goods or renders the services
and if there is any disagreement in future, use the writing or record as an evidence to resolve the
misunderstanding or rectifying the error.”
Recording of business transactions is necessary from owners’ point of view and other interested
party as well. The persons included in the second category are the suppliers of the materials,
products and services to the business, the government and the society at large. The creditors
(suppliers who are willing to take their payment later) are interested to know whether the business
will be able to pay them later (solvency of the business) whereas the government wants to know
whether the business has paid whatever was due to them in terms of taxes, fees, etc.

Did u know? What are the purposes of preparing financial statements?
1. Accounting provides necessary information for decisions to be taken initially and it
facilitates the enterprise to pave way for the implementation of actions.

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