Financial Accounting Objective Notes
Long question With Answer
Q.1. Define financial accounting. State its objective and Functions. How accounting is Different from bookkeeping ?
Differentiate between bookkeeping and accounting. (BBA 1st semester notes )
Ans. Financial Accounting: The primary objective of accounting is to ascertain profit and loss and to know about the financial position of the enterprise at the end of the accounting period.
Accounting means an information system that provides useful accounting information to various parties and users to arrive at a rational decision. We can also say that accounting is nothing but a mean of communicating the result of business operation to various parties interested in or connected with the business via the owner, investor, government and other agericies.
Accounting is thus rightly called as the language of business :
Definition of Accounting (BBA Notes)
According to Smith and Ashborne, “Accounting is a means of measuring and reporting the result of economic activities.”
According to Bherman and Derbin, “Accounting may be defined as the identifying, measuring, Recording and communication of financial information.”
According to R.N Anthony, “Nearly every business enterprise has an accounting system. It is a means of collecting, summarizing. Analyzing and reporting in monetary terms information about the business.”
Objectives of Accounting (BBA Study Material Financial Accounting)
- Maintaining Proper Record of Business: The main purpose of accounting is to identify business transactions of financial nature and enter them into books of accounts, Business transactions classified as assets, liabilities, capital, revenue and expenses accordingly passed through books. The Accounting records should be made properly and systematically, so that requisite information may be obtained at a glance from the books of accounts.
- Calculation of Profit and Loss: Accounting helps in the calculation the profit and loss of business. Income statement is prepared with the help of trial balance. At the end of the accounting period, we prepare trading accounts to calculate gross profit and loss. After that profit and loss account is prepared to calculate net profit or a net loss. Accounting in this way is the source to evaluate the performance of the business in terms of profit.
- To Show the Financial Position: At the end of the accounting period, we prepare a position statement. The value of assets and liabilities is shown in the balance sheet also known as a position statement.
The balance sheet is a statement of assets and liabilities of the business on a particular date. The assets sides of the balance sheet show the position of various assets such as cash in hand, cash at bank, closing stock building furniture, etc. The liabilities side shows creditors, B/R loans, outstanding, etc. Balance Sheet is said to be a mirror, reflecting the true position of assets and liabilities on a particular date.
- To Communicate the Information to the Users: Accounting communicates information to internal users like the officers and staff of the firm and external users like owners, the creditor, the government, etc. Accounting aims to meet the information needs of the decision-makers and help them in rational decision-making.
BBA 1st Semester Bookkeeping Notes