Unlike the principles of Physics, Chemistry and other natural sciences; accounting principles were not deduced from basic axioms, nor their validity is verifiable through observations or experiments. For example, if there are fixed assets shown in the balance sheet, then the replacement cost will be difficult, and variation and people will cause variation and market price. The cost principle will be more useful than the value principle because value will be based on market prices and personal judgment will differ in finding out value. In the case of small businesses and organizations, these functions are handled by an accountant or bookkeeper or at most a certified accountant. But in the case of larger organizations, a team of certified public accountants which is also known as CPA and chartered accountants (CA) along with their teams is the ones who handle these transactions and takes care of accounting. Accounting is defined as a process of record keeping of all financial transactions in a business. Your email address will not be published. The different methods used for charging depreciation will give different results. 2) Historical Nature: and How to Overcome Them. 9 Features of accounting which are as follows, How To Write An Executive Summary (Complete Guide), What Are Social Barriers? Accounting provides a feature of classifying all of the financial transactions into a different category. These categories are grouped according to their similarities in one place. Accounting provides a feature of classifying all of the financial transactions into a different category. It is ensured that personal whims and biases are not included in the case of accounting, which makes it bias-free. Required fields are marked *, Copyright © 2020 Marketing91 All Rights Reserved, Top 9 Important Features Of Accounting everyone should know, Profit Center: Meaning & How to Measure the Performance of Profit Center, Top 14 Benefits of Learning A Second Language | Marketing91, The 10 Most Important Features of Business you should know, The 13 Most Important Features of Management you should know, 15 Organizing Skills Everyone Should Incorporate, 10 Features of Communication you should know, Management Planning Process - All You Should Know, What are Essential Skills? A principle will be relevant only if it satisfies the needs of those who use it. Sometimes one feature may have to be sacrificed for the other so that it may be adopted as principle. This helps to categorize all similar transaction under one heading, which helps in finding them makes it easier. The principles should be easy to use otherwise their utility will be limited. Let's stay in touch :), Your email address will not be published. Hence, it also helps to analyze the company’s operations, efficiency, and profitability. Image Guidelines 5. A firm prepares various reports with the help of it. In the case of smaller organizations and smaller businesses, it is handled by a bookkeeper or an accountant. TOS 7. So even if the principles used are similar but the application of these principles in one’s own way may give varying results. To deal with the complexities and problems of every business unit the accountant devises new principles. There is no set list of accounting principles which should be used in every concern under all situations. The primary function of these departments or people is to keep a record of all the financial transactions happening in the organization and report them to the authorities and responsible person of the company by submitting reports of Management and cost accounting. Reliability: Reliability is described as one, of the two primary qualities (relevance and reliability) that … Report a Violation, 10 Major Limitations of Financial Accounting, Human Resource Accounting: Meaning, Definition, Objectives and Limitations, Accounting Standard (AS) 1 : Disclosure of Accounting Principles | Institute of Chartered Accountants. The reason is that all the financial accounting information are not necessary to management. The conclusions drawn from these principles may also be different. Even if similar accounting principles are used by different concerns, the application of these principles will be different. Suppose you are the co-owner and manager of a retail store that sells and repairs mountain bikes. It should not change according to the people but should remain the same. The features mentioned above should be present in accounting principles. 2. Following are the characteristics features of Financial Accounting: 1) Monetary Transactions: In financial accounting only transactions in monetary terms are considered. A principal has relevance when it has figures and facts. This is the reason why accountants use generally accepted accounting principles, which are also abbreviated as GAAP. Privacy Policy 8. These entries are useful to determine and locate the nature of the transaction and to analyze its effect on the overall balance sheet. Every entry of the accounting system is related to the financial transaction of the company, which is why the financial statement is a glimpse into the mirror of the organization. Disclaimer 9. Copyright 10. Transactions not expressed in monetary terms do not find any place in financial accounting, howsoever important they may be from business point of view. These principles are drawn from practical practice of accounting. The first in first out (F.I.F.O.) Every business has multiple transactions going throughout the day, and it is essential that to determine the productivity of the business, these transactions be recorded. During inflationary conditions, profits will be more if stock is valued with LIFO method. The principles are sometimes used according to convenience and suitability. The reason for this is that nature of business activities is different, problems faced by different concern are not similar and the thinking of managements too is different. Essential Features of Accounting Principles. Understandability 4. Whatever principles are followed they are ‘generally accepted principles, and not principles accepted by everyone. method will give quite a different value of stock then the last in last out (L.I.F.O.) Review Problem 1.1. The steps in accounting are calculated based on fixed formulas. No list of universally accepted principles can be prepared but still certain principles are drawn which are accepted by most of the accountants. Graphics: Accounting is a numbers-focused activity.