Objectives of Accounting

 i. Objectives of Accounting

Ans – The objectives of accounting can be stated as follows:

1) To keep systematic records: Accounting is done to keep a systematic record of financial transactions like purchase of goods, sale of goods, cash receipts and cash payments etc. A Systematic record of various assets and liabilities of the business is also to be maintained.

2) To ascertain the net effect of the business operations i.e., profit or loss of business: We know that the primary objective of business is to make profit and the businessman is very much interested in knowing the same. A proper record of income and expenditure facilitates the preparation of the profit and loss account (income statement). The profit and loss account reveals the profit earned or loss incurred by the business firm during a particular period.

3) To ascertain the financial position of the business: The businessman is not only interested in knowing the operating result, but also interested in knowing the financial position of his business i.e., where it stands. In other words, he wants to know what the business owes to others and what it owns and what Happened to his capital - whether the capital has increased or decreased or remained constant. A Systematic record of various assets and liabilities facilitates the preparation of a statement known as "Balance Sheet" (position statement) which answers these questions.

4) To provide accounting information to interested parties: Apart from the owners, there are various other parties who are interested in knowing about the business firm, such as the management, the bank, the creditors, the tax authorities, etc. For this purpose, the accounting system has to supply the required information.

ii. Bill of Exchange & Promissory Note

Ans – According to the Indian Negotiable Instruments Act, 1881, a bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument.

A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking; signed by the maker to pay a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument.

A bill of exchange is a bill receivable (B/R) to the drawer or the payee, and a bill payable (BIP) to the drawee. Similarly, a promissory note is a bill receivable for the payee and a bill payable for the maker. For accounting purposes, no distinction is made between a bill of exchange and a promissory note.

iii. Accounting Concepts

Ans – Accounting system has evolved to achieve a set of objectives. The objectives were to identify the goals and purpose of financial record keeping and reporting. In order to achieve the goals, we need a set of rules or guidelines. These guidelines are termed here as 'Basic Accounting Concepts'. The term 'Concept' means an idea or thought. Basic accounting concepts are fundamental ideas or basic assumptions underlying the theory and practice of financial accounting. These concepts are also termed as 'Generally Accepted Accounting Principles'. These are broad working rules of accounting activity, developed and accepted by the accounting profession. They evolved over a period in response to the changing business environment and the specific needs of the users of accounting information.

The concepts guide the identification of events and transactions to be accounted for, their measurement and recording and the method of summarising and reporting to interested parties. The concept, thus, helps in bringing about uniformity in the practice of accounting.

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