Accounting as a Source of Information
Providing information has become the most important objective of accounting. Every steps in the process of accounting generates information.
The accounting information should ensure to:
provide relevant information to make the decision appropriate and effective
Provide information for maintaining and utilizing resource effectively.
Provide appropriate information to different interested groups
Provide effective information directing the controlling of an organization's human and material resources
Provide information facilitating social function and control.
The role of an accountant in generating accounting information is to identify events, Measurement, Recording and communicating to the users. These are interpreted, decided and used by management and other interested groups. The information provided should be relevant, adequate, and reliable for decision-making.
To satisfy the additional demand of management for information, several new branches of accounting have bee developed.
- Financial Accounting
- Cost Accounting
- Management Accounting
It is primarily concerned with systematic record of financial transaction towards the preparation of Profit and loss and Balance Sheet. It is monetary in nature. Interested groups like owners, creditors, management, and employee make use of information provided by financial accounting.
It is the process of accounting for costs. It is to ascertain the cost of a product and to help the management in the control of cost. It is essential for pricing of products and services and for cost reduction and cost control.
It is exclusive for Management decision making. It is a reproduction of final accounts in such a way as will enable the management to take decision and to control activities. It draws information from financial accounting and cost accounting for Management budgeting, assessing profitability, Capital expenditure and so on.
It usually provides data on funds, cash flow, Sales forecast, Manpower needs, investment projects etc., for effective decision making.
Qualitative Characteristics of Accounting Information:
The accounting information should possess the characteristic of
The accounting information must be reliable. It should be free from error and bias
It should be verifiable by independent parties and be neutral and faithful.
The accounting information is relevant only when it is received at right time and enables in prediction about the outcome of past /present / future events.
It means the accounting information must interpret accounting information in the same sense as it is prepared and conveyed to them. Account should convey the information in an effective manner without sacrificing relevance and reliability.
Comparisons of results among different accounting periods can be significant and meaningful only when consistent practices were followed in ascertain them. .i.e. It must belong a common period and use common unit of measurement etc.,