Top 4 Characteristics of Accounting – Discussed!

Some of the most vital characteristics of accounting are as follows:  

1. Economic Events:

Every business involves economic events. Economic events mean the business transactions which can be measured in terms of money. Economic events may be internal or external. Accounting involves both of them. External events occur between outsiders and the organization.

For example, purchase of goods, sale of goods, purchase of furniture etc. When an economic event occurs between the different departments of the organization itself, it is known as internal event. For example, payment of salary to the staff, supply of raw material by the purchase department to the production department etc.

2. Identification, Measurement, Recording and Communication:

The economic events are to be identified, measured in terms of money, recorded in proper form and communicated to the intended users.

(a) Identification:

Identifying the transactions means the selection of transactions to be recorded. Only those transactions are to be recorded which are related to the organization and considered as financial in character.Evaluation of business transactions and other economic events is done to examine whether those transactions are related to the business and can be recorded in the books of accounts.

For example, change of fashion, change of government policies, change of management policies etc. cannot be recorded in the books of accounts but their impact on sale and profit can be recorded in the books of accounts.

(b) Measurement:

The identified business transactions which can be quantified estimated and measured in terms of monetary units viz. rupees, dollars and yens etc. can be recorded in the books of accounts. For example, lack of control system in the business organization, appointment or removal of staff, though important, cannot be measured in terms of money, and hence cannot be recorded in the books of accounts.

(c) Recording: measured in financial terms. Recording of economic events should be based on generally accepted accounting principles.

(d) Communication:

Identification, measurement and recording of economic events are done in order that the relevant information is generated and communicated in a prescribed format to the management and other internal and external users. Communication of information is done through preparation and distribution of annual reports which include Trading and Profit & Loss Account, Balance Sheet and Cash Flow Statements etc.

With the help of ratio analysis, the results of financial statements can be made, interpreted and reported in the annual reports. Responsibility and ability of an accountant/analyst plays a vital role in reporting the accounting information in the communication process.

3. Entity:

In the whole accounting process, we are concerned about the entity, which does economic activities. Entity means and includes any profit making or not-for-profit enterprises. For example, any sole-proprietorship concern, partnership firm, company, cooperative society, trust and/or any government body such as Municipal Corporation etc.

4. Interested Users of Information:

Different kinds of information are needed by different categories of users to take decisions. Two broad groups in which the users can be divided are internal and external users. A system should be developed in such a manner that the accounting information system is able to provide the right information to the right person at the right time.

As per the needs of the users, reports should be supplied daily, weekly, monthly, quarterly, six-monthly or annually. It is worth mentioning that with the enactment of the Right to Information Act, it is very important for every organization to keep ready, all information pertaining to them.

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