PURPOSE of Accounting

Purpose means an intention, a goal or intended result of effort. The intention or purpose of accounting is to help various financial users see the over-all and/or true picture of businesses, organizations or entities in quantitative, economic and/or financial terms. The processes and activities involved in accounting help the business owners and users of financial information in surviving economically. People inside the organization must have the right information in the right time to monitor and keep due control in managing the affairs of the entity, and make decisions and implement strategies so to ensure that the entity continues to operate and remain in business year after year and so on and on. Thus, it is necessary that the financial information presented thru financial reports must be timely, understandable, relevant, reliable and complete.

OBJECTIVES of Accounting

The objective of Accounting is to provide users with useful information for economic and decision-making study and judgments. Businesses are established for the purpose of earning profit. To determine whether the business earned profit or suffered losses is thru the preparation of the so-called Income Statement in which the revenues, gains, costs to operate and expenditures are shown. Income Statement is usually prepared periodically. Aside from determining profit or losses, it is also important to financial users to know the financial standing of the business. The so-called Statement of Financial Position (SFP) is prepared for this purpose. SFP formerly known as Balance Sheet shows the resources of the entity and the claims against these resources. Resources of the entity are called Assets while the claims against the assets by creditors and owners are the so-called Liabilities and Owners Equities (or Capital). SFP shows the financial condition of the entity on a particular day, and usually, it is prepared at the end of the period. The information provided helps the users evaluate the amounts, timing, and uncertainty of the entitys future cash receipts and disbursements. Cash-related activities of the entity are reflected thru the so-called Statement of Cash Flow. Future cash receipts and disbursements are planned thru the strategic planning activities made by management and key people inside the organization and expressed thru the budgeting process. Management, business owners and financial users also use various accounting data and financial reports in carrying-out efficiently, effectively and properly the day-to-day operations and affairs of the organization especially in managing, planning, organizing, monitoring and controlling its various transactions, economic events, and activities.

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