Accounting is not just something that is done only by business organizations. In fact, even we as individuals have our own way of accounting that we follow, so that we know how financially sound we are and how much we can save, spend, etc. It is the same with business organizations too, although on a much larger and much more organized scale. So, why is accounting important? What are the objectives of accounting? Why do companies spend so much money and resources on this task? Let's find out the answers to those questions in this Buzzle article.
Disclosure: One of the most important and primary objectives of any accounting department that is in place, is disclosure. This means the disclosure of the various financial statements of the company. These financial statements, like the balance sheet are the reflection of the price and value of the company. Every company is, by law, required to publish these financial statements. Accountants work round the year to collect and preserve every document that is related to the money matters in any way. These are all used to compile financial statements, which are then audited and published.
Financial Standing: As mentioned above, one of the important objectives is to disclose financial statements. These financial statements are nothing but a reflection of the financial standing of the company or organization. It paints a picture of how much money the company has, how much it owes and how much money other organizations owe it. So, it is a summary of how dependable and how safe it would be to invest in. When this objective is achieved, it becomes a little easier to assess the future financial plans of the organization.
Financial Planning: Once we have an idea of the financial standing of the company, we can move on to the financial planning as per the results of the disclosure. We can study what are the financial shortcomings of the organization, where the company can spend more money, and what are the expenses that can be cut down. In this way, the assets and liabilities need to be assessed to check and consider what are the best steps to be taken.
Record of Assets and Liabilities: In the process of financial planning, the objective of cost accounting comes into play. How to be more cost-effective in production and how to use this cost-effectiveness to boost sales and bring in profits is looked at. If a method to do that is not derived, then the company may be forced to look into its non performing assets and keep tabs on any liabilities that are long overdue. Any asset that is not serving up to the mark can be sold off and liabilities are taken care of. For this, a complete and comprehensive record of the assets and liabilities is essential. That can only be achieved by regular and spot-on accounting.
Government: Another purpose of accounting, which is quite matter of fact, is the government angle. Every organization needs to be under the radar of the government to see to it that no illegal practices like fraud or embezzlement are carried out. The only way to this is to have a transparent accounting system and records that will be a testament to the complete transparency of the business carried on daily by the organization. Hence, it is also one of the important objectives of accounting that is followed.
The objectives of accounting mentioned above are the most elementary ones. Getting into the intricacies is something that can take a long time and requires thorough expertise, which can be achieved only through proper training.