The basic objective of accounting is to provide financial information to investors and creditors. The use of standardized accounting principles reduces the uncertainty associated with financial reports, and helps investors and creditors compare companies’ financial performance. In addition, accounting helps businesses maintain records of business transactions that can be used as and when needed. The purpose of accounting is to provide information to help make business decisions about future investments.
A balanced sheet is a financial statement used to evaluate the health of an organization and to make decisions about future growth. It also serves as a tool to make business decisions and determine the amount of profit that can be made. Consequently, proper accounting helps business owners and managers make sound business decisions. Moreover, it helps them set realistic goals and plan for future growth.
A business organization often engages in a number of transactions daily. Some of these transactions may produce a profit, but others will result in losses. In these cases, a company needs to create a balance sheet that aggregates these events over a period of time. Keeping this book can help a company reduce its liability and keep its assets in order.
The second objective of accounting is to develop critical thinking skills. This means being able to analyze accounting problems and arrive at reasoned conclusions. Accounting objectives also include learning how to use authoritative databases and how to effectively communicate findings in written form. The third objective is to help students understand the rules and regulations of a particular accounting system.
Accounting principles have been developed over time from a variety of sources including practical usage, customs and conventions. However, no single principle is foolproof. This makes accounting a behavioral science, which is why it is called behavioral science. Although these principles are not exact, they are based on sound reasoning. This means that if there are a number of errors in a particular transaction, they should be a direct result of the underlying performance of the business.