Question

What are the objectives of Book-keeping and Accountancy.

Answer 1

(i) For objectives of Book-keeping, refer to Point No. 4 from the Subject Matter.
(ii) Objectives of Accountancy:
(1) Ascertainment of Profit or Loss: The prime objective of the accountancy is to ascertain profit or loss, made in the business. It is ascertained by preparing Trading Account and Profit and Loss Account. The direct expenses and indirect expenses of the business are debited to Trading Account arid Profit and Loss Account respectively. The direct incomes and indirect incomes are recorded on the credit side of the Trading Account arid Profit and Loss Account respectively. If business incomes exceed its expenses, there is profit. In case expenses exceed incomes, there is loss.
(2) Ascertainment of financial position: To provide detailed information about the assets and liabilities of the business to its proprietor is another important objective of the accounting. Businessman prepares Balance Sheet to understand the financial position of the business.
(3) Ascertaining owner's equity (interest): The businessman invests his property in the business as capital. He earns profit every year in the business. Part of the profit he withdraws from the business for his personal use and remaining profit is retained in the business. Such retained profit is called accumulated profit. It is added back to capital. The owner's equity is calculated any time by using the following formula:Owner's equity = Capital employed + Accumulated Profit + Reserves and Provisions - Drawings + Additional Capital introduced - Losses.Providing all these information to its owners is another important objective of accountancy.
(4) Decision making: Supplying various information relating to financial status and profitability in respect to past years and current year.to the proprietor or management for comparison and drawing conclusions and for decision making is another important objective of accountancy. The proprietor or management can take easy and correct decision on the basis of accounting information received.
(5) Control over errors and frauds: Accountancy facilitates to detect errors, frauds, irregularities and discrepancies committed in the process of recording business transactions. Businessman can adopt suitable system to detect fraud, errors, irregularities, etc.
(6) Control on Cash flow: Good accounting system, enables, the businessman to impose regular control over the inflow and outflow of cash. In the business there should be neither excess cash balance nor shortage of cash than required. Excess cash as well as shortage of cash posses financial problems.