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Features of Accounting Explained
Nupur yadav
Updated on 29th June, 2024 , 3 min read
What is Accounting?
The process of recording the financial transactions of a business is called accounting. It includes summarising, analysing and recording these transactions to present them to the business, investors, and government taxation authorities. This process is done for one year which is called the financial year. In an accounting period, it provides a summary of the operations, financial position and cash flow statement of the business. In this article, we will discuss what are the features of Accounting, the objectives of Accounting and more.
What are the features of Accounting?
Maintenance of Records of Business Transactions
The process includes the maintenance of the systematic record of all the financial transactions in the books of accounts.
There are two aspects of recording the transactions, firstly no matter how good your memory you cannot remember all the transactions happening in a business accurately and if the business is a big business you’ll have hundreds and thousands of records to keep which can only be referred or taken evidence if it is written somewhere.
Calculation of Profit and Loss
Every business is in the market to make money, but that cannot be figured out if we do not have a clear picture of the sales, purchases, expenses and therefore profit and loss. Profit represents the excess of the revenue over the expenses. Let’s understand this better, say your business made a total revenue of 6,00,000 and expenses of 5,40,000, therefore the business made a profit of 60,000. And if the business had made the losses more than the revenue the business would have incurred a loss.
Depiction of Financial Position
Every business consists of some assets and liabilities and in the end, the status of these defines the financial position of the business. A proper record of the resources owned which are the assets and the claims against those resources which are the liabilities of the business.
Providing Accounting Information to its Users
Accounting information is required by different users so that they can decide upon things based on that information. These users are of two types, internal users and external users. The information is made available in the form of graphs, charts, statements and reports to these users.
The internal users include the people who are directly engaged in the business or the management who need timely information and reports about the business sales, and revenues for controlling, planning and decision-making of the business.
The external users are those who do not have a direct link to the business and limited authority, ability and resources to obtain information about the business.
The external users include the following:
- Investors: the current and potential investors look into this information to find out the return on their investment.
- Unions and Employee Groups: they look into the accounting information to ascertain the stability and fair distribution of wealth in the business.
- Customers: information on the continued existence of the business and profitability and stability to ensure brand trust and loyalty.
- Lenders and other loan providers: to ensure the creditworthiness of the company and its ability to honour its obligations.
- Suppliers and creditors: these people have allowed for the supply of materials without the exchange of the money, hence they use the information to ensure they are being paid on time.
- Governments and its associated bodies: information on the allocation of the resources and compliance to regulations.
- Social responsibility groups: every business is responsible for society and the social groups.
- Competitors: they use this information to ensure that they stay in the game and keep up with the parallel businesses.
Conclusion
Accounting is defined as the process of recording financial transactions in books of account, categorizing them under various heads and subheads, summarizing accounting data into reports and financial statements, and analyzing financial data to aid decision-making. Both financial and management accounting are critical to the proper operation of enterprises and sectors. And the Features of Accounting include Recording, Classifying, Summarizing, and Interpreting the business's financial information.
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Frequently Asked Questions
What are the features of Accounting?
It is essentially a statement composed of transactions from a specific category. An account in business contains information about transactions, funds, and available cash. Accounting procedures involve several sorts of accounts, which might include transactions involving both expenses and income.
What are the 5 keys of accounting?
Although accountants' guidelines are extensive, there are five fundamental principles that govern accounting processes and financial statement production. These include the accrual principle, the matching principle, the historic cost concept, the conservative principle, and the idea of substance over form.
What are the 5 main in accounting?
The five main terms in accounting are Assets, Expenses, Liabilities, Equity and Revenue (or income).
What is a key in accounting features?
Recording and classifying transactions, maintaining the general ledger and chart of accounts (COA), and producing financial statements and other financial reports.
Who is the father of accounting?
Luca Pacioli (c. 1447–1517) was the first individual to provide thorough literature on the double-entry accounting method.