Functions of Accounting

The functions of accounting are:

Managing Resources

The first function of accounting is to manage the resources held by specific entities.

Reflection of Claims

Its purpose is to reflect the claims on the business.

Measurement of Changes

Its purpose is also to measure the level of changes in the claims against the business.

Division of Specific Periods

Another purpose of accounting is to divide the change into specifiable periods of time.

Expansion in Terms of Money

Expressing the above in terms of money as a common denominator is also an important function of accounting.

Limitations of Accounting

The main limitations of accounting:

  1. Accounting is historical in nature, meaning that it does not reflect the current financial position of the business
  2. In accounting, financial statements and the profit and loss account have a tendency to match the current revenues with historical costs and not with current expenses
  3. Inflation is not considered in accounting statements
  4. Accounting statements do not always provide comparable data because accounting principles are not static
  5. An increase in the value of net assets that is not considered to be realized is not reflected in the profit and loss account

Frequently Asked Questions

What is the main function of accounting?

The primary function of accounting is to manage and track the resources held by an entity. It also measures the changes in those resources over a specific period of time. Additionally, accounting provides data that is essential for business decision-making. However, it should be noted that accounting is not perfect and has limitations.

What are some limitations of accounting?

Some limitations of accounting include its historical nature, which does not reflect the current financial position of a business and the exclusion of inflation from statements. Additionally, accounting statements may not always provide comparable data because principles are not static. Furthermore, increases in net assets that have not been realized may not be reflected in profit and loss accounts.

How do accountants ensure that Financial Statements are reliable and accurate?

Accountants ensure the reliability and accuracy of Financial Statements by rigorously testing and verifying the data they contain. They also use standardized Accounting Procedures and controls to ensure consistency and compliance with regulatory requirements.

How does accounting help businesses to make informed decisions?

Accounting helps businesses to make informed decisions by providing an overview of financial performance, trends, and risks. It also enables businesses to compare their performance against industry benchmarks.

What challenges does the future hold for accounting professionals?

The future of accounting is likely to be dominated by digital technologies, which will enable accountants to provide more sophisticated services and advice. There will also be an increasing demand for accountants with specialist skills in areas such as data analysis and risk management.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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