When a person starts a business, whether large or small, his main aim is to earn profit. He receives money from certain sources like sale of goods, interest on bank deposits etc. He has to spend money on certain items like purchase of goods, salary, advertisement etc. These activities take place during the normal course of his business. He would naturally be curious at the year end, to know the progress of his business. The number of business transactions are generally too large, that it is not possible to recall his memory as to how the money had been earned and spent. But if he had noted down these transactions as and when they were occurred, he can readily get the required information. Hence, the details of the business transactions have to be recorded in a clear and systematic manner to get answers easily and accurately for the following questions at any time he likes :
(i) What is the Net Profit or Loss of the business ?
(ii) What are the value of Assets, Liabilities and Capital of the business concern?
(iii) How much money is used in different type of expenses and money earned from different type of incomes
(iv) How much amount is to be receive from customers to whom goods have been sold on credit ?
(v) How much amount is to be paid to suppliers on account of credit purchases?
These and several other questions can be very easily answered with the help of accounting.