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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.
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