Give some salient features of accounting
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Financial Accounting and its characteristic features
MBA finance >> General Accounting
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Explain Financial Accounting. What are its characteristic features?
Financial Accounting is the process in which business transactions are recorded systematically in the various books of accounts maintained by the organization in order to prepare financial statements. These financial statements are basically of two types: First is Profitability Statement or Profit and Loss Account and second is Balance Sheet.
Following are the characteristics features of Financial Accounting:
1) Monetary Transactions:
In financial accounting only transactions in monetary terms are considered. Transactions not expressed in monetary terms do not find any place in financial accounting, howsoever important they may be from business point of view.
2) Historical Nature:
Financial accounting considers only those transactions which are of historical nature i.e the transaction which have already taken place. No futuristic transactions find any place in financial accounting, howsoever important they may be from business point of view.
3) Legal Requirement:
Financial accounting is a legal requirement. It is necessary to maintain the financial accounting and prepare financial statements there from. It is also obligatory to get these financial statements audited.
4) External Use:
Financial accounting is for those people who are not part of decision making process regarding the organization like investors, customers, suppliers, financial institutions etc. Thus, it is for external use.
5) Disclosure of Financial Status:
It discloses the financial status and financial performance of the business as a whole.
6) Interim Reports:
Financial statements which are based on financial accounting are interim reports and cannot be the final ones.
7) Financial Accounting Process:
The process of financial accounting gets affected due to the different accounting policies followed by the accountants. These accounting policies differ mainly in two areas: Valuation of inventory and Calculation of depreciation.
Answer:
Accounting is defined as a process of record keeping of all financial transactions in a business.
Explanation:
Salient features of accounting are
Accounting principles must be feasible, predictable, and applicable. This must be easy to apply in the accounting system and must be easy enough to be implemented by everyone
Accounting is special in that it documents all financial transactions. It offers a framework for the accurate recording of the transaction that businesses may make use of. The recording is systematic and is necessary for anyone who is knowledgeable in accounting standards and laws.
Accounts include the classification into a separate group/category of all financial transactions. These categories are grouped in accordance to their similarities in one place.
Accounting has a feature of repeatability because of established procedures and formulae. The steps in accounting are calculated based on fixed formulas.
The accounting principles are considered to be helpful and provide the individual important information. There are several sections and headings for the multiple transactions to make it easier for the finder to to locate a particular transaction
Any specialist will read and understand a description of the financial statement. The definition is identical and does not distinguish between individuals or auditors. It remains constant regardless of the person interpreting it that gives accounting the feature of universality.
Accounting is known to provide summaries of relevant and complex financial statements. Statements of fund flow, balance sheet, and cash flow, are summarised simply and presented to the investors and the public. These statements are useful for investors to make investing decisions
The statements made by a qualified auditor or bookkeeper for the financial department may be audited for authenticity and verified. All entries in the accounting system are linked to the company's business operation, and a financial statement offers an overview of the organisation's performance