8 Characteristics of Accounting

Accounting in a very simple sense is maintaining a record of varied activities. Thus, Accounting is some things that are used almost by everyone in their daily lives. In our lifestyle, we maintain a record of varied transactions or activities. Given below are the various characteristics of accounting that can be derived from the meaning of accounting.

Characteristics of Accounting

Financial Nature Transactions: Accounting is the process of identifying and recording the events and transactions of financial character. Financial nature transactions are those transactions that can be measured in terms of money or which involve a flow of cash. There may be events that are not financial in nature but are significant for a business. For example, honesty and dedication of an employee is an important factor that cannot be recorded in the books. So, accounting records only financial nature transactions and events. Thus, transactions of non-financial nature are not recorded even if they have a substantial effect on the business.

Art also as Science: Art may be a method of achieving the planned goals. Accounting, in reference to art, maybe a process, of identifying, recording, classifying, and summarising financial transactions with the assistance of which a business is able to do its desired goals. It helps in knowing the profitability and financial status of a business. On the other hand, science is an organized and systemized body of knowledge based on some basic principles. In a similar sense, accounting is also like science as it is based on certain basic accounting principles and standards.

Measurement in terms of Money: In accounting, all the business transactions are recorded in terms of a standard unit i.e. money. this suggests that the transactions which can’t be measured in terms of cash won’t be recorded within the books albeit they need considerable effects on the earnings of a business.

Recording: Accounting may be a process of recording business transactions within the books of accounts. All the financial transactions are first recorded in the Journal or in case of bulky transactions recording is made in various subsidiary books such as Cash Book (a book for recording cash transactions), Purchase Book (a book for recording transactions associated with credit purchases), Purchase Return Book (a book for recording transactions associated with the return of credit purchases), etc and Journal Proper (transactions which cannot be recorded in any above books).

Classification: Transactions of comparable nature are classified into different categories consistent with their nature. This means transactions of comparable nature are collected and recorded at one place that’s within the ledger book. For example, all the transactions related to sales are recorded in the Sales Account.

Summarisation: In accounting, financial data is presented in such a manner that it can be easily understood and utilized by its various users such as management, investors, creditors, etc. To fulfill this, Trial Balance, Trading and Profit and Loss Account, Statement of Profit or Loss (in case of companies), and Balance Sheet are prepared. All these statements help the users for an easy understanding of the financial data of a business.

Analysis and Interpretation of Results: The results of a business are interpreted and presented in such how that the users of monetary statements can easily realize the performance of the business in terms of profitability and solvency. It also helps them in assessing the financial status of the business.

Communication: within the last, accounting helps in communicating the financial results of a business to its various interested parties who can use the knowledge as per their distinctive needs.

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