The exam asks: what is the first objective of accounting? Many students write “finding profit or loss”. It sounds right, but the book says otherwise. The reason is simple: if nothing was written down, there is nothing to find out. In this note you will settle which of the nine objectives comes first, which comes after, and why.
1. Write first, know next
The book lists objectives and necessities together, under one heading, in nine points. At the head of the list is the foremost objective: to record the transactions properly, by a fixed method, into the books of accounts. Everything else stands on that writing.
Next comes a main objective: to ascertain the financial results and the financial position. Do not blur the two phrases. “Foremost” marks the start of the order; “a main one” is one important objective among several. Sort the four chips into the two boxes.
sort themchip, then box
Which is foremost, which is a main one?
Pick up a chip, then drop it in a box. Ask: is this the writing, or the knowing that comes out of the writing?
Right. Next one.
Not yet. Whatever you learn only after the writing cannot be the foremost.
All in place. Recording is the first task in the book's list, so it is foremost. Ascertaining results and position is a main objective. Profit or loss gives you the result, and assets, liabilities and owner's equity give you the position.
2. Result and position
First the result. Record all revenues and expenses properly and you can determine the profit or loss. The size of that profit or loss then shows the motion of the business, which way it is heading.
Now the position. Calculate the assets, liabilities and owner's equity of the business and you get the complete picture of its financial position. The result tells how the business ran; the position tells where it stands now.
Write first, know next: test it. A month's six transactions are in the books. What happens to the result if one is left out?
write firstleave one out
Unwritten means wrong
The income and expense figures are made up to show the rule.
3. Cost, fraud, decisions, comparison
Record all expenses properly and accounting helps to control cost. With cost under control, the business can reach the profit it wants.
In stopping fraud and forgery, accounting has no alternative. With proper record-keeping, they can be kept under control.
Passing the financial results on to the interested parties, and using that information in the business's various decisions, is also an objective of accounting.
How much can one year's profit tell you on its own? Look at one year first, then put all the years side by side.
year against yeartap a year
Rise or fall?
The four years of profit are made-up figures.
One year's accounts sit alone. Put the financial statements of several years side by side and the rises and falls show up, so the needed steps can be taken. Tap the four causes and see the effects.
cause and effecttap a cause
Match cause and effect
Cost control. Recording all expenses properly helps control cost, and makes the wanted profit possible.
Profit or loss. Recording all revenues and expenses properly lets you determine profit or loss.
Rise and fall. A comparative study marks the rises and falls, and then the needed steps can be taken.
Fraud control. Accounting has no alternative in stopping fraud and forgery; proper record-keeping can control it.
All four seen. The book prints one heading for objectives and necessity, so these four need no separate boxes. Remember which action brings which effect.
4. Who it serves
It is not only for shopkeepers. In service-oriented non-profit organizations such as schools, colleges, hospitals, clubs and societies, recording the sources of money coming in and going out lets you ascertain the accounts balance. Profit is not the aim there, but where the money came from and where it went still has to be accounted for.
Government also runs on accounts. It collects revenue through taxes, duties and VAT, then spends it on regular and development sectors. Accounting plays a helping role in running this smoothly.
A business uses its own books and papers too: to take a loan from a bank or a money-lending organization, to fix the selling price of a product, and to decide future activities.
Now tap the nine organizations. Under each you will see whether it is in the book's list or not.
classifytap an organization
Profit-seeking or non-profit?
School. Non-profit. In the book's list.
College. Non-profit. In the book's list.
Hospital. Non-profit. In the book's list.
Club. Non-profit. In the book's list.
Society. Non-profit. In the book's list.
Shop. Profit-seeking. Not in the book's service list; board papers count it this way.
Bank. Profit-seeking. Not in the book's service list; board papers count it this way.
Insurance company. Profit-seeking. Not in the book's service list; board papers count it this way.
Advertising agency. Profit-seeking. Not in the book's service list; board papers count it this way.
All nine seen. The book's service-oriented non-profit examples are five: school, college, hospital, club, society. The other four are profit-seeking.
5. Accounts in life
For a fine, disciplined and frugal life, keeping accounts is essential. Without proper accounts, the good and the bad sides of an organization can never be known.
Keep records properly and you can control cost and stop wasting money, and so reach financial solvency.
So one goal of the chapter is not just knowing but being interested: to want to keep accounts in daily, personal, family and institutional activities.
6. Check yourself
Three questions. Start with the first.
check yourselfpick one answer
Question 1
Which of the following is the main objective of accounting?
Right. The book says ascertaining financial results and financial position is one of the main objectives of accounting.
Cost control is a use of accounting; the main objective is to ascertain results and position.
Preventing fraud is a use of accounting; the main objective is to ascertain results and position.
Comparative analysis is one more use; the main objective is to ascertain results and position.
In the second, keep “first” and “main” apart.
check yourselfpick one answer
Question 2
Example of a non-profit service organization-
i. Educational institution ii. Advertising agency iii. Social club
ii is wrong: an advertising agency is profit-seeking and not in the book's list of service-oriented non-profit organizations.
Right. i and iii are right: educational institutions and social clubs are service-oriented non-profits; ii, an advertising agency, is not.
ii is wrong: an advertising agency is not a non-profit, and i is left out.
ii is wrong, so all three cannot be right.
The last one is a final polish.
check yourselfpick one answer
Question 3
Which of the following is a service-oriented non-profit organization?
A bank runs for profit; it is not a non-profit.
A shop runs for profit. The book's answer: A charitable hospital.
A factory runs for profit. The book's answer: A charitable hospital.
Right. A hospital is an example of a service-oriented non-profit organization in the book.
The whole note on seven cards.
cut from the notetap to turn over
Seven cards
QuestionWhat is the foremost objective of accounting?
AnswerTo record the transactions properly into the books of accounts
QuestionWhat is one of the main objectives of accounting?
AnswerTo ascertain financial results and financial position
QuestionBetween recording and ascertaining results and position, which is the foremost objective?
AnswerRecording; ascertaining results and position is a main objective
QuestionWhich three amounts must be found for a complete picture of financial position?
AnswerAssets, liabilities and owner's equity
QuestionWhat has no alternative in controlling fraud and forgery in a business?
AnswerAccounting (proper recording of accounts)
QuestionA shop and a bank: which class of organization do the boards count them as?
AnswerProfit-seeking organizations (as the boards ask it)
QuestionAccording to the chapter goals, in which activities should you be interested in keeping accounts?
AnswerDaily, personal, family and institutional activities
Source: Accounting, Classes 9-10 (NCTB), Chapter 1 “Introduction to Accounting”, the “Objectives and necessity of accounting” part.