Explain the factors, which necessitated systematic accounting.
Explain the factors, which necessitated systematic accounting.
The factors that necessitated systematic accounting are given below.
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Only financial transactions are recorded− Those events that are financial in nature are only recorded in the books of accounts. For example, salary of an employee is recorded in the books but his/her educational qualification is not recorded.
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Transactions are recorded in monetary terms− Only those transactions which can be expressed in monetary terms are recorded in the books. For example, if a business has two buildings and four machines, then their monetary values is recorded in the books, i.e. two buildings costing Rs 2,00,000, four machines costing Rs 8,00,000. Thus the total value of assets is Rs 10,00,000.
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Art of recording− Transactions are recorded in the order of their occurrence.
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Classification of transaction− Business transactions of similar nature are classified and posted under their respective accounts. For example, all the transactions relating to machinery will be posted in the Machinery Account.
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Summarising of data− All business transactions are summarised in the form of Trial Balance, Trading Account, Profit and Loss Account and Balance Sheet that provides necessary information to various users.
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Analysing and interpreting data− Systematic accounting records enable users to analyse and interpret the accounting data in a proper and appropriate manner. These accounting data and information are presented in form of graphs, statements, charts that leads to easy communication and understandability by various users. Moreover, these facilitates in decision making and future predictions.
The factors that necessitated systematic accounting are given below.
-
Only financial transactions are recorded− Those events that are financial in nature are only recorded in the books of accounts. For example, salary of an employee is recorded in the books but his/her educational qualification is not recorded.
-
Transactions are recorded in monetary terms− Only those transactions which can be expressed in monetary terms are recorded in the books. For example, if a business has two buildings and four machines, then their monetary values is recorded in the books, i.e. two buildings costing Rs 2,00,000, four machines costing Rs 8,00,000. Thus the total value of assets is Rs 10,00,000.
-
Art of recording− Transactions are recorded in the order of their occurrence.
-
Classification of transaction− Business transactions of similar nature are classified and posted under their respective accounts. For example, all the transactions relating to machinery will be posted in the Machinery Account.
-
Summarising of data− All business transactions are summarised in the form of Trial Balance, Trading Account, Profit and Loss Account and Balance Sheet that provides necessary information to various users.
-
Analysing and interpreting data− Systematic accounting records enable users to analyse and interpret the accounting data in a proper and appropriate manner. These accounting data and information are presented in form of graphs, statements, charts that leads to easy communication and understandability by various users. Moreover, these facilitates in decision making and future predictions.
