12 Objectives of Accounting and Why They're Important
Updated September 30, 2022
Accounting objectives are the primary purposes for implementing accounting systems. They help accounting professionals adhere to legal regulations and maintain accurate records. If you're an accountant or you want to become one, learning more about accounting objectives and why they're important can be beneficial.
In this article, we explain why accounting objectives are important, list 12 objectives of accounting and provide tips for improving your accounting skills.
Why are accounting objectives important?
Accounting objectives are important because understanding them can help professionals and students understand the importance of using accounting processes in their work. Knowledge of accounting objectives can help you determine if your accounting system is sufficient or if it requires adjustments to accomplish objectives. Managers and leaders can also learn more about accounting objectives to better lead teams of accounting professionals.
12 objectives of accounting
Here are 12 objectives of most accounting processes:
1. Accurate transaction record
The first objective of accounting is to maintain an accurate record of all transactions. A transaction includes any exchange of money for goods or services, whether purchased or sold by the company. This can include materials, building costs and equipment.
2. Asset and liability tracking
Assets and liabilities are types of financial items that a company can own. Assets are any item that has value, while liabilities refer to the debt the company has. Another objective of accounting is to maintain a consistent record of the assets and liabilities a company maintains.
3. Business decision guidance
Business professionals can use accounting resources to guide their business decisions. Because accounting professionals keep an accurate record of all transactions and the financial status of the company, a leader can use the information to better understand which decisions may result in success. For example, if one department within the company consistently requires more money than it generates, the leader may decide to downsize or eliminate it.
4. Compliance with legal regulations
Accounting can be a legal requirement for many companies. Legal compliance is another accounting objective because companies can often supply their accounting records to show compliance with rules and regulations. For example, if a region requires a certain wage for staff or fees for operation, accounting records can show that the company paid them properly.
5. Control over fraud and risk
An important objective of accounting is controlling instances of fraud. Fraud can occur when information isn't accurate within the records. Detailed and meticulous accounting can protect the company from financial errors, theft and fraud. Accounting creates a system of accountability that requires all team members and departments to communicate their financial transactions.
6. Economic data recording
Accounting creates a detailed history of financial actions within a company from when it starts. This generates a store of data relating to the business's financial history. A company can use accounting information to create a database containing economic and financial data.
7. Financial budgeting and planning
Budgeting and financial planning are aspects of accounting that help companies prepare for the future. Creating a budget is an important accounting objective because it allows accounting professionals to prepare a plan for what the company intends to spend in the upcoming month or quarter. Financial planning can help companies keep costs low and profits high.
8. Information for financing
Financing is a process that entails a company applying for a loan to fund a business expense. When companies apply for business loans, they often present their financial information to show lenders they're capable of paying the money back. This makes collecting information for financing applications an important function of accounting.
9. Management of cash flow
The term cash flow refers to the number of liquid assets a company maintains. Management of cash flow is an important accounting objective because it helps accountants ensure there's enough cash for company processes. For example, a company ensures it has the proper amount of funds to pay all team members every two weeks.
10. Measure of performance
The process of accounting produces financial records that business professionals can use to measure performance. This may include accounting performance, in which professionals assess the level of accuracy and adherence to budgets. It can also include team or departmental performance.
11. Tax preparation and filing
Filing and paying taxes are vital actions for a company's financial health. One objective of accounting is tracking all expenses so when it's time to file and pay taxes, the company can be sure it pays the correct amount. Businesses want to avoid overpaying on taxes, and accounting can help them identify opportunities for tax credits and ensure they pay the correct amount.
12. Understanding of financial health
The accounting process monitors all aspects of a company's financial profile. This allows business professionals to access accounting information and receive a general overview of the company's financial health. They may review assets and liabilities, cash flow, future financial planning and budgets, tax estimates, how departments perform financially and wages.
Tips for improving your accounting skills
These are some tips for improving your accounting skills:
Learn to use multiple accounting systems. As an accounting professional, learning to use multiple programs and systems for accounting can help you transfer easily between roles and positions.
Find an accounting mentor to guide you. If you're unsure how to improve your accounting skills and knowledge, consider finding a mentor who can help guide you can show you how to advance your career.
Join accounting classes and groups. Consider joining professional accounting associations and taking additional classes to improve your skills and ensure your accounting knowledge is current.
Enhance your mathematical abilities. Successful accounting requires excellent skills in mathematics, so it can be helpful to improve your calculation and computation skills.
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