Purpose of Accounting Information

What are the purposes of accounting information?

• Score Keeping: The score-keeping function is one the primary purposes of accounting information. It basically deals with the financial health of the enterprise. In other words, it answers: How are we doing? Good, bad or indifferent? Though it appears to be a simple question, a moment’s reflection will show that it is not that simple. It involves answering questions such as: What is doing good? What is doing bad? Is profit earned good? If so, how much? Is it that profit alone is not sufficient? Thus we can go on increasing the string of questions intending to further clarify the basic question. Thus, score keeping has two aspects, one is that of keeping record of actual data on performance – a constant process of measurement and valuation. The other aspect is concerned with putting the data in relation to predetermined standards. In order to answer the question whether the performance is good, bad or indifferent we have to have a constant process of comparison against some norms, standard or benchmarks. This is achieved by preparing a series or reports based on comparison of actual data with the planned data.
• Attention Directing Attention directing is nothing but the process of giving a signal to the user of accounting information about the need to take a decision. As such the accounting information supplied arouses the user’s attention to take decision. For example, a report from an accountant comparing the actual performance data against budget data is a score keeping record. In the hands of a decision-maker it is an attention directing information. This would enable him to immediately focus his attention on the deviations or variances from the budgets or the plants. A whole series of actions will be triggered by this, namely, evaluation or reasons for the deviations, remedial actions to be taken, modifications in the feedback for future and so on.
• Problem Solving: The problem solving function of accounting information involves provisions of such information, which enables the manager to find solutions to the problems. There are many problems, which accounting information could highlight and provide for their possible solutions, such as ‘make or buy decisions’ with respect to components, parts or products, ‘continue or drop decisions’ with respect to product lines, ‘leasing or acquisition decisions’ with respect to asserts etc. problem solving is therefore an important purpose of accounting information system.