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Purpose of Accounting

Purpose of Accounting

Purpose of Accounting act as a custodian of resources on behalf of shareholders (owners of resources). So management is accountable to the shareholders at the end of the day. Investor or shareholders usually have keen interest to know how the business performs during a specified period of time. Accounting is such a reporting tool to the management which helps it to discharge its accountability to the investors. Hence Purpose of accounting is a Service Activity.

As an Information system, accounting reports the operating performance (net income or net loss) to the shake holders group of diversified interests (creditors, shareholders, tax authority and so on). Account system also provides a year-ending summary of financial position of a business entity. Thus aids in making effective decision. Again management can best exercise control over cost, assets and liabilities of the entity by means of reports. Moreover, is an acceptable practice over the world. The business entity or the management activities get acceptance from the society by systematic practice for Purpose of Accounting.

Finally, accounting is the financial language of a business entity. It speaks of the financial performance of the business. Most importantly, from the recent global phenomena (Enron, Global Crossing, World Com and so on) accounting is expected to serve another vital role. Signals the stakeholders group as to the financial prospect of the business activities. Accounting better knows what is going to happen to the organization in near future.

Purpose of Accounting

 

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