Objective

Question 1

1. To Keep Systematic Records

Answer 1

Every business performs multiple transactions daily—purchases, sales, expenses, receipts, etc. It is not practical to remember each transaction, especially over long periods.

Financial accounting helps maintain proper books of accounts to systematically record every transaction.

This creates a permanent and reliable financial history of the business that can be referred to at any time.

Question 2

2. To Determine Profit and Loss

Answer 2

One of the primary reasons for running a business is to earn a profit. Accounting helps to measure whether the business made a profit or suffered a loss during a specific period (usually a financial year).

By preparing an Income Statement (Profit and Loss Account), which includes:
Revenues earned from sales, services, etc.
Expenses incurred like salaries, rent, Cogs, etc.

Question 3

3. To Ascertain Financial Position

Answer 3

Besides knowing profit/loss, it’s essential to understand the overall financial condition of the business Through the Balance Sheet, which shows:

Assets
Liabilities
Capital/Equity

This helps in understanding:
The value of the business,
Whether the business can pay its debts,
Whether the business is financially stable.

Example: If liabilities are more than assets, the business might be in danger.