Accounting Functions and Attributes

Accounting refers to the systematic process of recording, classifying, summarizing, and interpreting financial transactions of a business or organization. It provides essential information about financial performance and position, aiding in decision-making and compliance with regulations. Key elements include assets, liabilities, equity, revenues, and expenses.

Functions of Accounting

1. Keeping Systematic Records

Accounting is to report the results of most business events. Hence, its main function is to keep a systematic record of these events. This function embraces recording transactions in journal and subsidiary books like cashbook, sales book etc., posting them to ledger accounts and ultimately preparing the financial statements [final accounts].

2. Communicating the Results

The second main function of accounting is to communicate the financial facts of the enterprise to the various interested parties like owners, investors, creditors, employees, government, and research scholars, etc.

The purpose of this function is to enable these parties to have better understanding of the business and take sound and realistic economic decisions.

3. Meeting the Legal Requirements

Accounting aims at fulfilling the legal requirements, especially of the tax authorities and regulators of the business. It discharges this function in accordance with certain fundamental truths and uniform enforcement of generally accepted accounting principles.

4. Protecting the Properties of the Business

Accounting helps protecting the property of the business.

5. Planning and Controlling the Business Activities

Accounting also helps planning future activities of an enterprise and controlling its day-to-day operations. This function is done mainly to promote maximum operational efficiency.

Attributes of Accounting

1. Accounting is both an art and science

Analysis, interpretations and communication of financial results are the art of accounting requiring special knowledge, experience and judgment. As a science, accounting is governed by certain principles, concepts, conventions and policies. But it is not an exact science like other physical sciences; rather it is an exacting science.

2. It involves recording, classifying, and summarizing

Recording means systematically writing down in account books the transactions and events reasonably soon after their occurrence.

Classifying is the process of grouping of transactions or entries of one nature at one place. This is done by opening accounts in a book called ledger. Summarizing involves the preparation of reports and statements from the classified data [i.e., ledger]. This involves the preparation of final accounts.

3. It records transactions in terms of money

This provides a common measure of recording and increases the understanding of the state of affairs of the business.

4. It records only those transactions and events, which are financial in character.

Non-financial events, howsoever important they may be for the business, are not recorded in accounting.

5. It is the art of interpreting the results of operations

It aids to determine the financial position of the enterprise, the progress it has made, and how well it is getting along.

6. It involves communication

The results of analysis and interpretation are communicated to the management and other interested parties.