Characteristics / Features of Accounting

Characteristics of Accounting :

From the different definitions of accounting, we can understand some important characteristics or features of accounting. These features explain how accounting works and what makes it useful for businesses.

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(1) Accounting is an Art as well as Science

Accounting is considered both an art and a science.

Accounting as an Art

Art means applying knowledge and skills to achieve a particular objective. In accounting, skill is required to record, classify and summarize business transactions properly so that the financial position and profit of the business can be determined.

Example (Real Life):
An accountant must carefully decide how to record a transaction, which account to use, and how to present it in financial statements. This requires practice and expertise, just like an artist using creativity and skill.

Accounting as a Science

Science means a systematic body of knowledge based on rules and principles. Accounting also follows certain accounting principles, standards and rules which make it scientific.

Example (Real Life):
Rules like Double Entry System, Accounting Standards and Principles are followed in accounting, just like scientific laws are followed in science.

So, accounting combines skill (art) and systematic principles (science).

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(2) Recording of Transactions of Financial Character

Accounting records only those transactions that have a financial nature and can be expressed in terms of money.

Events that affect the business but cannot be measured in money are not recorded in accounting books.

Examples:

✔ Recorded in Accounting

• Purchase of goods for ₹20,000

• Payment of salary ₹10,000

• Sale of goods ₹50,000

❌ Not Recorded in Accounting

• Strike by workers

• Change in management policy

• Appointment of a new manager

These events may be important for business but cannot be expressed in money, so they are not recorded in accounting.

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(3) Recording in Terms of Money

Another important characteristic of accounting is that all transactions are recorded in monetary terms.

If transactions are not expressed in money, they cannot be properly summarized or compared.

Example

Suppose a business has the following assets:

• Cash

• Land

• Trucks

• Machines

• Chairs

• Tables

If these assets are written only in numbers or quantity, it will be difficult to understand the total value.

For example:

• Cash ₹50,000

• Land ₹2 Crore

• Trucks ₹50,00,000

• Machines ₹20,00,000

• Chairs ₹50,000

• Tables ₹25,000

When expressed in money value, it becomes easy to calculate the total assets and financial position of the business.

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Recording of Transactions (Journal and Subsidiary Books)

In accounting, the first step is recording transactions.

Journal

In small businesses where the number of transactions is limited, all transactions are first recorded in a book called the Journal.

The journal is also known as the book of original entry.

Subsidiary Books

In large businesses, there are many transactions every day. Therefore, recording everything in one book becomes difficult. For this reason, the journal is divided into different subsidiary books, such as:

1. Cash Book – Records all cash transactions.

2. Purchases Book – Records credit purchases of goods.

3. Sales Book – Records credit sales of goods.

4. Purchases Return Book – Records goods returned to suppliers.

5. Sales Return Book – Records goods returned by customers.

6. Bills Receivable Book – Records bills to be received from customers.

7. Bills Payable Book – Records bills to be paid to creditors.

8. Journal Proper – Records special transactions that do not fit into other books.

The number of subsidiary books depends on the size and nature of the business.

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(4) Classifying

After transactions are recorded in the journal or subsidiary books, the next step is classification.

Classification means grouping similar transactions together in different accounts.

This is done in the Ledger.

Example (Real Life):

If a business pays salaries many times during the month, all salary payments are grouped in Salary Account in the ledger.

Similarly:

• Rent payments → Rent Account

• Purchases → Purchases Account

• Sales → Sales Account

This makes it easier to know the total amount of each type of transaction.

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(5) Summarising

Summarising means presenting classified accounting data in a meaningful form.

After transactions are classified in the ledger, summaries are prepared through:

• Trial Balance

• Trading Account

• Profit and Loss Account

• Balance Sheet

These summaries help in understanding the profit, loss and financial position of the business.

Example (Real Life):

After recording and classifying all transactions of the year, a business prepares a Profit and Loss Account to determine whether the business earned profit or suffered loss.

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(6) Interpreting the Results

Accounting not only prepares financial statements but also interprets the results.

Interpreting means analyzing financial information to understand the performance and financial condition of the business.

This information helps different people such as:

• Owners

• Managers

• Investors

• Banks

to make important decisions.

Example (Real Life):

If the Profit and Loss Account shows declining profits every year, management may decide to:

• Reduce expenses

• Improve sales strategies

• Change pricing policies

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(7) Communicating

The final step of accounting is communicating financial information to users.

Accounting information is communicated through:

• Financial statements

• Reports

• Graphs

• Presentations

These reports help users make proper business decisions.

Example (Real Life):

Investors study the Balance Sheet and Profit & Loss Account before deciding whether to invest in a company.

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Accounting Process

The accounting process follows a systematic cycle, which is known as the Accounting Cycle.

Steps of Accounting Process

1. Identification of transactions

2. Recording

3. Classifying

4. Summarising

5. Interpreting the results

6. Communicating information

This process ensures that financial information is properly recorded, organized and presented to users.

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✅ In Simple Words:
Accounting is a complete process that starts from identifying transactions and ends with communicating financial information to decision makers.