Financial accounting refers to the process of collecting, summarizing and recording the financial information of the business. The main purpose of maintaining financial accounting is to ascertain profit or loss and to reveal the financial position of the firm.
Objectives Of Financial Accounting
The main objectives or purposes of financial accounting can be expressed as follows:
1. Recording Of Financial Transactions
Financial accounting is used for collecting, summarizing and recording of financial activities. So, it helps to reflect entire business activities of the company.
2. To Ascertain Profit Or Loss
Financial accounting helps to ascertain the results of operations (Profit or loss) by preparing profit and loss statement or income statement at the end of the accounting year.
3. To Disclose The Financial Position
Financial accounting helps to reflect the financial position of the company by preparing balance sheet at the end of the period.
4. To Report Financial Information
Another objective of financial accounting is to provide actual financial information to the users. Financial accounts such as income statement, cash flow statement and balance sheet are prepared under financial accounting system. So, it helps to report to the management, shareholders and other parties about the performance of the company.
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5. To Facilitate Decision Making
Financial accounting provides financial data and information to the management. So, it helps in decision making and financial planning process of the management.
