FINANCIAL ACCOUNTING

Two Primary Business Objectives
The management of every business must keep foremost in its thinking two primary objectives. The first is to earn a profit. The second is to stay solvent, that is, to have on hand sufficient cash to pay debts as they fall due. Profits and solvency, of course, are not the only objectives of business managers. There are many others, such as providing jobs for people, protecting the environment, creating new and improved products, and providing more goods and services at a lower cost. It is clear, however, that a business cannot hope to accomplish these objectives unless it meets the two basic tests of survival operating profitably staying solvent.
A business is a collection of resources committed by an individual or group of individuals, who hope that the investment will increase in value. Investment in any given business, however, is only one of a number of alternative investments available. If a business does not earn as great a profit as might be obtained from alternative investments, its owners will be well-advised to sell or terminate the business and invest elsewhere. A business that continually operates at a loss will eventually exhaust its resources and be forced out of existence. Therefore, in order to operate successfully and to survive, the owners or managers of an enterprise must direct the business in such a way that it will earn a reasonable profit.

Business concerns that have sufficient cash to pay their debts promptly are said to be solvent. In contrast, a company that finds itself unable to meet its obligations as they fall due is celled insolvent. Solvency must also be ranked as a primary objective of any enterprise, because a business that becomes insolvent may be forced by its creditors to stop operations and its existence.
Reference : Walter B. Meigs, Robert F. Meigs, McGraw-Hill Book Company New York, 1987, “Financial Accounting”.