IMPORTANCE OF ACCOUNTING

 i) Owners : The owners provide or capital for the organization . They possess curiosity  in knowing 

whether the business is being conducted in sound lines or not and whether the capital is being employed 

properly or not. Owners , being businessmen , always keep and eye on the returns from the investment.

comparing the accounts of various years helps in getting good pieces of information.

ii) Management : The Management of the business is greatly interested in knowing the position of the 

firm. The accounts are the basis , the management can study merits and demerits of the business activity.

Thus, the management is interested in financial accounting to find whether the business carried on is

profitable or not . The Financial accounting is the "eyes and ears of management and facilities in 

drawing future course of action , further expansion etc."

iii) Creditors: Creditors are the persons who supply goods on credit, or bankers or lenders of money. It is usual that these groups are interested to know the financial soundness before granting credit. The progress and prosperity of the firm, two which credits are extended, are largely watched by creditors from the point of view of security and further credit. Profit and Loss Account and Balance Sheet are nerve centres to know the soundness of the firm.

iv) Employees: Payment of bonus depends upon the size of profit earned by the firm. The more important point is that the workers expect regular income for the bread. The demand for wage rise, bonus, better working conditions etc. depend upon the profitability of the firm and in turn depends upon financial position. For these reasons, this group is interested in accounting.

v) Investors: The prospective investors, who want to invest their money in a firm, of course wish to see the progress and prosperity of the firm, before investing their amount, by going through the financial statements of the firm. This is to safeguard the investment. For this, this group is eager to go through the accounting which enables them to know the safety of investment.

vi) Government: Government keeps a close watch on the firms which yield good amount of profits. The state and central Governments are interested in the financial statements to know the earnings for the purpose of taxation. To compile national accounting is essential.

vii) Consumers: These groups are interested in getting the goods at reduced price. Therefore, they wish to know the establishment of a proper accounting control, which in turn will reduce to cost of production, in turn less price to be paid by the consumers. Researchers are also interested in accounting for interpretation.

viii) Research Scholars: Accounting information, being a mirror of the financial performance of a business organization, is of immense value to the research scholar who wants to make a study into the financial operations of a particular firm. To make a study into the financial operations of a particular firm, the research scholar needs detailed accounting information relating to purchases, sales, expenses, cost of materials used, current assets, current liabilities, fixed assets, long-term liabilities and share-holders funds which is available in the accounting record maintained by the firm.

Check Your Progress 1

List out five objectives of Accounting.

Notes: (a) Write your answer in the space given below.

(b) Check your answer with the ones given at the end of this Lesson (pp. 13).

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