Quantitative Attributes of Accounting: Nature of Accounting

 

NATURE OF ACCOUNTING

Accounting is a financial information system.

It measures, processes and communicates financial information for decision makers.

Business activities are identified and measured in terms of money.

Then processed and finally communicated to the various groups of users.

Without accounting, the financial transactions are only data.

They are converted to information by the accounting processing system.

The Nature of Accounting can be defined in two ways:

(A) Qualitative Attributes of Accounting  

(B) Quantitative Attributes of Accounting

 

(B) QUANTITATIVE ATTRIBUTES OF ACCOUNTING

Quantitative means related to quantity and it is measurable.

Attribute means assign qualities to somebody or something.

Therefore, quantitative attributes of accounting means make ready financial statement in measurable condition and assign to related users.

The quantitative attributes explaining nature of accounting as follows:

 

Accounting is an art as well as science

In simple words, science is world based on the fact that can be proved with examples and by experience.

Art is ability or skill that can be developed with training and practice.

In accounting, we apply both science and art. Therefore, accounting is science as well as art.

However, accounting is not a pure science.

 

Recording of financial transactions only

Financial accounting records only financial transactions and events that are expressed in monetary terms or in quantitative form.

However, there are so many events which are very important for business but cannot be recorded in the books of accounts because such events cannot be expressed in quantitative or monetary form.

For example, machine shut down due to load shedding, loyalty of employees, strike by employees, resignation by an able and experienced manager etc.

 

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Click on link for YouTube videos topic wise :
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger Account	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Click on link for YouTube videos chapter wise:
Financial Accounting and Analysis (All videos)		http://tiny.cc/jlersz
Accounting Process		http://tiny.cc/mlersz
Accounting for Long Lived Assets		http://tiny.cc/plersz
Analysis of Financial Statement		http://tiny.cc/slersz

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Recording in terms of money

The accounting records only those transactions which can be expressed in terms of money only.

A business person cannot record the purchase of 4 chairs and 1 table; there is not value in term of money.

He will record the monetary value of 4 chairs costing $/₹/Rs 8,000 and 1 tables costing $/₹/Rs 10,000.

 

In small business organizations, they record transactions in journal entries whereas in large business organizations, they record in:

Cash book

Purchase book

Sales book

Purchase return book

Sale return book

Bills receivable book

Bills payable book

Journal proper

 

Classifying the transactions

After recording monetary transactions in journal entries and subsidiary books, they are classified into ledger accounts.

All the accounts related to creditors, debtors, capital, assets, liabilities, incomes and expenses are separately opened in the ledger accounts.

For example, Wages Account, Amit’s Account, Rent Account, Cash Account, Bank Overdraft Account etc.

 

Summarising the transactions

After recording financial transactions in ledger accounts, ledgers are closed.

There may be debit or credit balance in ledgers; some ledgers do not have any balance.

Organization prepares trial balance from ledgers’ balance.

Trial balance is a summary of all the ledger accounts.

It is prepared to check the arithmetical accuracy of accounts.

From trail balance, financial statements are prepared like;

Income statement (trading and profit and loss account)

Balance sheet

 

Analysing

From the final accounts, cash flow statement and fund flow statement are prepared; users can analyse financial data by using ratio analysis.

Financial data users are internal and external.

The main purpose of analysis is to identify the financial strengths and weaknesses of an organization.

 

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