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Preparation of Final Accounts

The scope and importance of accounting is to provide variable information about a business enterprise to those persons who are directly or indirectly interested in the progress, performance and financial position of the concern.

Information is the basis for decision making in an organization. The efficiency and soundness of the management depends upon the availability of regular and connect information to those who exercise the managerial functions. Such persons may include owners, creditors, investors, employees, government, public, research scholars and the managers.

1. Owners. The owners of a business could contribute capital to be used for the purpose of starting and running the business. The ultimate aim of accounting is to provide necessary information to the owners relating to their business. They want to evaluate the past financial performance and also assess the future prospects through the accounting reports.

2. Creditors. Creditors, debenture holders, bankers and other financial institutions are interested in knowing about the short term as well as long term financial position of the company. Because, they want to find out the ability of the firm to pay interest and principal as and when it becomes due for payment.

3. Potential Investors. Any investor, before making investment in any particular company shares, wants to know not only the earning capacity of the organization but also its solvency position. For this purpose, investors take information from accounting reports to a great extent in order to determine the relative merits of the available investment opportunities.

4. Employees. Employees are the backbone of the organization. They are interested in the earning capacity of a concern because their salaries, bonus, and pension schemes are dependent on the size of the profit earned.

5. Government. Government is the sole authority for the country’s economic development. For the purpose of finding out overall economic growth point of view, the government is very much interested in accounting statements and reports in order to see the financial position of a particular unit. With the help of the accounting information, government is not only to prepare national account but also to impose tax and excise duty.

6. Public. The public as consumers is interested in accounting information in order to testify whether the control is properly exercised on production, selling and distribution for the purpose of reducing the prices of the goods they buy. And also they are interested to know, whether all the available economic resources of the concern are being properly utilized for the benefit of the common man or not. And at the same time, they want to examine any of the aspects of the business which can be detrimental to the public interest.

7. Research Scholars. Financial statements are very helpful to the research scholars. Enormous information is available from the accounting reports. Depending upon their research area, the researcher could get the data for providing their thesis on which they are working and hence to complete their research projects.

8. Regulatory Agencies. In order to protect the public from the fraudulent activities of the business, various governments, voluntary service institutions, and other agencies use accounting information not only for the tax assessment purpose but also in evaluating how well various business concerns are operating under legal framework.

9. Managers. The foremost responsibility of the managers of the organization is to obtain maximum return over the capital invested without causing any harm to the interest of the share holders. The manager would like to have a data regarding sales, expenses, assets, liabilities etc. relating to next year and also the flow of fund for the purpose of the activities of a business. He also takes a decision and alters the decision in best way. In all these aspects, relevant accounting information is needed.