10 Objectives of Financial Accounting
10 Objectives of Financial Accounting are listed and explained one after the other in this article. You will find it informative.
Objectives of Financial Accounting
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Concept Financial Accounting is the concept of recording and organizing business transactions and other dealing basically for a fiscal character and the art of creating significant summaries, analyses, and interpretations of these transactions and events and communicating results to persons who must make decisions or form opinions based on their analysis.
This is an embodied definition profound and supported by numerous accountants in the concept of financial accounting.
The main objective of Financial Accounting is to disclose the activities regarding the profits and losses of the business.
The focus of this article is on the main objectives of Financial Accounting as discussed below:
1. Acquiescence with legal obligatory
One of the major objectives is to guarantee fulfillment and compliance with domestic policies that are highly connected to taxation policies.
According to the Companies Act and other statutory requirements, it is pertinent for a country to operate in accordance with the laws when managing the business.
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2. Prevention and Detection of Errors and Fraud
When any regular monetary accounts are presented, an adequate test is carried out to verify the account and test how reliable their figures could be.
Some errors conducted can be corrected. Most times errors can be consciously committed and the figures mutilated leading to fraud.
The objective of financial accounting is to reflect these financial errors are committed and even prevent any future erroneous occurrence through documentary and reference to data.
3. Measurement of Profit and Loss of the company’s account
Financial accounting takes into account the productivity of the company for a specific period of time and reveals the net profit of the entire company. This management feature shows the properties and accountabilities of the company.
4. Meeting the Objective of Various Stakeholders
The objective is to fulfill the desire of various stakeholders, which are concerned very related to the business. For instance, several stakeholders have dissimilar functions, such that an investor in the business may propose to evaluate the competencies of the company in order to disburse a certain amount of interest.
When the principal is involved, it is advisable for it to be loaned to another company or the intending creditor. Financial accounting has the interest of the stakeholders and resolves the problems associated with the company’s wealth in both short-run and long-run time series.
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5. Recognition and documentation of transactions
One of the basic objectives is to classify financial dealings and to document them steadily and methodically in the financial record of accounts.
Every transaction is mainly documented in the journal either in general or special journal depending on the information. First, the Financial Transaction that will be recorded should be identified and translated into the right journal entry.
6. Financial control over assets and liabilities
Every successful company has assets and liabilities just like every excelling business elite has numerous assets such as land, building, machinery, and so on.
Apart from these assets, the company has some incurred debt it must clear called liabilities such as accounts payable, notes payable, loans, bank overdraft, etc. financial accounting helps to regulate and monitor these assets and liabilities.
7. Stipulating economic data
It will interesting to know that over the years financial accounting has made economic data easily accessible through financial statements and reports.
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8. Following legal bindings and prohibitions
Financial accounting has set a base for every business organization to be constrained by the laid down rules and other legal bindings.
These prohibitions and exclusions help to uphold financial records precisely. For example; Partnership law, income tax law, company law, etc. induce a company to uphold a suitable account and ensure that all transactions are completely and systematically recorded.
9. Decision Making
Financial accounting takes decisions when the company wants to attain the maximum possible profit and intends to adjust the price of the product when there is a shortage of funds but the company intends to maximize the profit in order to improve the standard of the business when the organization obtains extra financing and intends to diversifying probably through the introduction of a new product into the market.
10. Liquidity Status
Financial accounting creates an awareness of the liquidity status of the organization. The absence of adequate documentation can result in financial negligence in the business and if not managed the business can be nonexistent over time.
On the other hand, adequate accounting measures help managers to determine the worth of resources and ensure effectiveness.
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Conclusively, Financial accountability is aimed at keeping a factual and reasonable opinion of the company which will protect the interest of numerous investors who are both internally and externally linked to the business.