- Nature of Accounting
- Qualitative Attributes of Accounting
- Quantitative Attributes of Accounting
- Purpose of Accounting
Accounting is that the method of recording money transactions concerning a business. The money statements employed in accounting are a laconic outline of monetary transactions over an accounting amount, summarizing a company’s operations, money position and money flows.
Accounting is art of recording, classifying, summarizing in a very important manner and in terms of cash, transactions and events that are, partly a minimum of, of monetary character and deciphering the results thence. the character of Accounting will be outlined in 2 ways:
• Quantitative Attributes of Accounting
• Qualitative Attributes of Accounting
Reliability implies that the knowledge should be factual and verifiable. The accounting info has afore mentioned to own verifiability if such info will be verified from supply documents like money memos, purchase invoices, sales invoices, correspondence, agreement, property deeds and alternative similar documents.
Relevance: Accounting info delineate by money statements should be relevant to the objectives of enterprise. superfluous and moot info mustn’t be enclosed in money statements. The International Accounting Standadrds Board (IASB) says that info has relevancy “When it influences the economic choices of users by serving to them judge past, gift or future events or confirming or correcting their past evaluations.”
Understandability: Accounting info ought to be conferred in such an easy and logical manner that they’re understood simply by their users like investors, lenders, staff etc. this could be done by giving relevant instructive notes to elucidate the knowledge given in money statements. General topics which might be enclosed within the instructive notes are technique of depreciation, technique of valuation of inventory, description of contingent liabilities, clarification of reserves, revelation of events occurring when record date etc
Comparability is extremely helpful quality of the accounting. The money statements ought to contain the figures of previous year alongside the figures of current year so the present performance will be compared with the past performance. Similarly, the money statements ought to be ready in such the simplest way that the profit and money position of the priority is also compared with the opposite considerations of the similar kind.
Faithful Illustration: Accounting aims at getting ready those money statements that depict truth and honest read of profit, liquidity and financial condition position of an enterprise. Application of acceptable Accounting Standards unremarkably ends up in money statements portrayal true and honest read of knowledge of an enterprise.
Quantitative Attributes of Accounting
Accounting Is an Art Additionally as Science: Accounting is an Art of recording, classifying, summarizing, analysing and deciphering the accounting records with a read to establish Infobahn profit/ loss and money position of the business. Accounting as a Science is an organized body of data that contains some underlying principles and rules that are followed whereas maintaining accounts. However, Accounting isn’t a pure science because it doesn’t establish cause and result relationship.
Classifying the Transactions: One of the options of Accounting is that it classifies all the transactions recorded within the book of the Journal. Classification refers to grouping the transactions of same nature at one place, in a very separate account. Classification of transactions is completed within the books of ‘Ledger’. All the accounts associated with creditors, debtors, capital, assets, liabilities, incomes and expenses are singly opened within the Ledger Book.
Summarising the Transactions: Summarizing is that the art of presenting the classified information in a very manner that is intelligible and helpful to management and alternative users of such information. It involves:
• Balancing of Ledger Accounts
• Preparation of balance
• Preparation of mercantilism and Profit & Loss A/c
• Preparation of record
Trial Balance may be an outline of all the ledger accounts and is maintained to see the pure mathematics accuracy of accounts. mercantilism Account is ready to seek out the profits or Gross Loss whereas Profit & Loss Account helps in knowing earnings or internet Loss. record ready at the tip of accounting year helps in knowing the money position of the priority.
Purpose of Accounting
Once this money info has been kept within the accounting records, it’s sometimes compiled into money statements, that embody the subsequent documents:
- Income statement
- Balance sheet
- Statement of money flows
- Statement of preserved earnings
- Disclosures that accompany the money statements
Financial statements are assembled below sure sets of rules, referred to as accounting frameworks, of that the most effective identified are typically Accepted Accounting Principles (GAAP) and International money coverage Standards (IFRS). The results shown in money statements will vary somewhat, counting on the framework used. The framework that a business uses depends upon that one the recipient of the money statements desires. Thus, a capitalist would possibly wish to visualize money statements supported IFRS, whereas a yankee capitalist would possibly wish to visualize statements that befits accumulation.
The comptroller could generate extra reports for special functions, like determinative the profit on sale of a product, or the revenues generated from a specific sales region. These are sometimes thought of to be social control reports, instead of the money reports issued to outsiders.
Thus, the aim of accounting centers on the gathering and succeeding coverage of monetary info.