- What are the main characteristics & objectives of accounting?
- Characteristics of Accounting
- Objective of Accounting
- Primarily, external users are involved in the following
What are the main characteristics & objectives of accounting?
Characteristics & objectives of Accounting are the attributes of the accounting information such as tend to enhance its understandability and usefulness & useful information to the interested group of users, both external and internal.
Characteristics of Accounting
Qualitative characteristics of accounting are the attributes of accounting info that tend to strengthen its comprehensibility and utility. To assess whether accounting info is named helpful, it should possess the characteristics of dependability, relevance, comprehensibility, and equivalence.
Main Characteristics of Accounting
Reliability ability the purchasers should be capable to believe the knowledge. The reliability of accounting statistics is set by way of the diploma of correspondence between what the facts convey about the transactions or occasions that have occurred, measured, and displayed. A piece of dependable information should be free from error and bias and faithfully represents what it’s meant to represent. To make certain reliability, the facts disclosed should be credible, verifiable by way of unbiased events use the identical approach of measuring, and be neutral and faithful.
To be relevant, facts have to be accessible in time, ought to help in prediction and feedback, and ought to affect the selections of customers with the aid of :(a) assisting them to shape prediction about the results of past, current, or future events; and/or (b) confirming or correcting their previous evaluations.
Understandability capability decision-makers ought to interpret accounting information in an identical experience as it is organized and conveyed to them. The qualities that distinguish between the right and awful conversation during a message are integral to the understandability of the message. A message is said to be successfully communicated when it is interpreted through the receiver of the message in the equal experience in which the sender has sent. Accountants should present the same facts in the most intelligible manner without sacrificing relevance and reliability.
It is not ample that the economic data is applicable and dependable at a singular time, during a specific circumstance, or for a singular reporting entity. But it’s equally necessary that the purchasers of the regularly occurring motive economic reports can evaluate a variety of things of an entity over a definite time duration and with different entities. To be comparable, accounting reviews need to belong to a standard duration and use a frequent unit of size and structure of reporting.
Objective of Accounting
As a records system, the elemental goal of accounting is to grant useful information to the fascinated crew of users, each exterior and internal. The necessary information, especially in the case of exterior users, is supplied in the shape of economic statements, viz., income and loss account, and balance sheet. Besides these, the administration is provided with additional information from time to time from the accounting documents of the business.
The objective of Accounting
1. Maintenance of Records of Business Transactions
Accounting is used for the protection of a systematic document of all financial transactions in the books of accounts. Even the foremost notable govt or manager cannot precisely take under consideration the several quantities of various transactions like purchases, sales, receipts, payments, etc. that take location in business every day.
2. Calculation of Profit and Loss
The proprietors of the enterprise are wanting to have a notion about the web effects of their business operations periodically, i.e. whether the commercial enterprise has earned profits or incurred losses. Thus, the other goal of accounting is to verify the profit earned or loss sustained by way of a billboard enterprise during an accounting period, which may be effortlessly exercised with the assist of a file of incomes and expenses relating to the commercial enterprise by using getting ready an income or loss account for the period. Profit represents the extra income (income).
3. Depiction of Financial Position
Accounting additionally goals at ascertaining the monetary role of the business within the structure of its property and liabilities at the cease of every accounting period. A suited report of sources owned using the enterprise company (Assets)and claims towards such sources (Liabilities) allows the practice of a press release recognized as a stability sheet role statement.
4. Providing Accounting Information to its Users
The accounting statistics generated by using the accounting procedure is communicated within the structure of reports, statements, graphs, and charts to the users who want it in distinctive choice situations. As already stated, there are two primary person groups, viz. interior users, more often than not management, who need timely statistics on the worth of sales, profitability, etc. for planning, controlling and decision-making and exterior customers who have restricted authority, ability, and assets to acquire the imperative data and have to be counted on financial statements (Balance Sheet, Profit, and Loss account).
Primarily, external users are involved in the following
- Investors and attainable investors-information on the dangers and return on investment.
- Unions and worker groups-information on the stability, profitability, and distribution of wealth inside the business; Lenders and monetary institutions-information on the creditworthiness of the organization and its capability to repay loans and pay interest.
- Suppliers and creditors-information on whether quantities owed will be repaid when due and on the endured existence of the business.
- Customers-information on the persevered existence of the commercial enterprise and thus the likelihood of a persisted provide of products, components, and after-sales service.
- Government and different regulators-records on the allocation of resources and the compliance to regulations.
- Social duty groups, such as environmental groups-information on the influence on the surroundings and its protection.
- Competitors-information on the relative strengths and weaknesses of their competition and for comparative and benchmarking purposes. Whereas the above classes of users share in the wealth of the company.
- Competitors require statistics in general for strategic purposes.