Financial accounting objectives and function

Q. Discuss the objectives and function of financial accounting.
Objectives of financial accounting:
Finding out various Balances. Systematic recording of business transactions in accounting provides vital information about various balances like cash balance, bank balance, etc.

Knowledge of Business Transactions. Systematic maintenance of books provides the detail of every transaction.

Net Profit or Loss. Summarization in form of Profit and Loss Account shows net profit or loss of business during a specified period.

Knowledge of Financial Position. Balance Sheet is prepared to depict financial position of business at a particular date. Position means what the business owns and what owes to others.


Information to all Interested Users After analysis and interpretation, business results are communicated to the interested users.


Fulfilling Legal Obligations. Vital accounting information helps in fulfilling legal obligations in time e.g., Sales tax, income tax etc.


Functions of financial accounting:

Accounting embraces of the following functions:

Recording Business transactions. The first function of accounting is to keep record of all business transactions.

Calculation of business Income and Ascertaining Financial position. In financial accounting, Profit and loss account is prepared for the calculation of business income and Balance Sheet is prepared for ascertaining financial position of business. Balance Sheet shows assets and liabilities of business.

Communication of Business Income and Position. The third function of accounting is to communicate the information of business income and financial position to interested parties like proprietors, investors, creditors, employees.