What does accounting aim to achieve?
What do we gain by inculcating the habit of accounting i.e., the habit of keeping a proper record?
If your answer was: Analysing Profits; you were only half-right.
Let us recall the definition of accounting:
Accounting is a habit of keeping a proper record of all business transactions for the businessman to later check the profits and stability of his business.
~ Yours Truly, 2024
Not One but TWO words stand out from the definition:
- Profits or, a better word may be Profitability and,
- Stability.
Profitability, as you can guess, is the ability of a business to earn profits.
Stability refers to the capacity of a business to repay its debts and stay afloat, while making money for the owners.
It is to regularly analyse these two aspects of a business that the concept of accounting year came about, at the end of which (i.e., on 31st March), we conduct our analysis.
With this, both me and you, have a clear goal in mind: Keep a proper record so that I can analyse profitability and stability of my business with each passing year.
So, how do we reach our goal? What is the path that we must take?
To know, read next: Two for Two.
Reference
Topics 1.3.1 to 1.3.3 NCERT Class 11 Accountancy
https://www.ncert.nic.in/ncerts/l/keac101.pdf
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