What are the main objectives of accounting pdf?
The main objectives of Accounting Services Knoxville are categorized into primary, reporting, and operational goals, all designed to produce useful financial information for decision-makers. The structure of these objectives is defined by major accounting standards (like GAAP and IFRS) and centers on communication and control.
The Primary Objective: Decision Usefulness
The single, overarching goal of accounting is to provide financial information that is useful to current and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.
This objective relies on the information allowing users to:
Assess Future Cash Flows: Evaluate the amounts, timing, and uncertainty of the company’s prospective net cash inflows.
Evaluate Economic Resources: Understand the entity’s assets (what it owns) and claims against the entity (liabilities and equity).
Reporting Objectives: The Core Financial Statements
These objectives focus on summarizing economic activity into understandable, comparable reports, primarily the four core financial statements:
1. Ascertaining Financial Performance
This involves determining the net profit or loss generated by the business over a specific period. This is accomplished by preparing the Income Statement, which matches the revenues earned against the expenses incurred to earn them. This informs users about the company’s operational effectiveness.
2. Determining Financial Position
This objective is to present a “snapshot” of the company’s financial health on a specific date. This is achieved by creating the Balance Sheet (Statement of Financial Position), which reports the entity’s:
Assets (Resources owned).
Liabilities (Obligations owed).
Equity (Owner’s or shareholders’ claim).
3. Reporting Cash Flows
This involves tracking all cash inflows and outflows during a period, broken down into Operating, Investing, and Financing activities. This is presented in the Statement of Cash Flows and is crucial for assessing the company’s liquidity (short-term cash health) and solvency (long-term survival).
Operational & Internal Objectives
These are the fundamental, day-to-day functions that support the accuracy and reliability of the final reports:
1. Systematic Record Keeping
Goal: To maintain a complete, permanent, and systematic record of all business transactions that can be measured in monetary terms.
Purpose: This process (known as bookkeeping) eliminates reliance on memory, provides legal evidence, and forms the basis for all further analysis.
2. Ensuring Accountability and Stewardship
Goal: To hold management responsible for the efficient and careful use of the company’s economic resources entrusted to them by the owners (shareholders).
Purpose: Financial reports are the formal mechanism used to measure and report on management’s performance.
3. Facilitating Internal Decision-Making
Goal: To provide relevant, timely, and detailed data to management for internal use.
Purpose: This data is used for budgeting, forecasting, performance evaluation, and strategic planning (often covered by Management Accounting).
4. Meeting Legal and Regulatory Compliance
Goal: To ensure the business fulfills all statutory obligations.
Purpose: Accounting Services in Knoxville records are necessary for filing tax returns (Income Tax, GST, etc.), complying with company laws, and providing data to regulatory bodies.