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Nature of Accounting

Nature of Accounting
July 16, 2020
Although ‘Accounting’ has been defined by the different scholarly ways, its nature of
accounting is essentially described. Conceptually, accounting is an art of recording,
classifying summarizing, and interpreting the financial result.
It defined as an art because it consists of certain creativity, value judgment, and skill
which assist us to attain certain specific goals.
The nature of Accounting mainly divided two views of point: 1. Structural viewpoint. 2.
Functional viewpoint.
Learning Objectives: Nature of Accounting.
After studying this unit,you will be able to:
The nature of accounting can be explained with the help of the following
1. Nature of accounting Structural Viewpoint:
i.science or an art.
ii.It is a history.
iii.Special Aspects.
iv.Is it a tool of Management.
v.Man-made system.
vi.Accounting is a process.
vii.Monetary Events.
viii.Accounting is a means and not an end.
2.Functional view point:
i.Accounting related to Identifying, Measuring, and Communicating
Accounting Information.
ii.Accounting related to identification of transactions.
iii.Accounting related to Measurement.
iv.Accounting related to Communication of Accounting Information.
The nature of accounting information is as follows:
Nature of accounting Structural Viewpoint:
Accounting is sometimes defined as a science, some times as an art, and
somewhere as a combination of both.
1.science or an art:
Science is a body of systematized knowledge. It consists of logically developed
principles and techniques based on cause and effect.
But”art” is related to the application of a knowledge in the compilation “ Kulshrestha
on Accounting” by Dr. M.B Shukla it is said that “the very first and basic
distinction between a science and an art is that former concerns with ‘head’ while the
latter with ‘head’.
In an identical or given set of circumstances, the laws of science can be applied equally.
But the art of applying the laws may not becomes the same. Accounting is a body of
principles and techniques which have a logical framework. This can be used universally
under different circumstances
. But application or mode of accounting is an art. Accounting, the subject of accounting,
is a science but accounting is an art equally. It is the main nature of accounting.
2.It is a history?:
Accounting is an economic history related to an accounting unit and recorded by the
accountant concerned. Normally, a historian records events taking place in political and
other fields over the years.
The accounting records the economic history of the events which are significant for
concerns. Accounting results are recorded in quantitative terms and have monetary
expressions. The historian may also record economic events.
But the form of that record is usually narrative and the expression is made is qualitative
terms. Moreover, accounting is not confined to mere record keeping.
It involves the classification and summarization of significant events and analysis and
interpretation of their financial results.
3.Special Aspects:
With the development of the branches of accounting, the nature of accounting it has
now become a social science. It is now considered as a service activity.
The purpose of accounting is not to serve the individuals only but to serve the society as
a whole. The measurement of national wealth, national income, etc are becoming
possible through national or macro accounting.
4.Is it a tool of Management:
Accounting, at present, is also serving as an essential tool of management. The concept
of Management Accounting has emerged from financial accounting. Management
accounting also utilizes the materials disclosed by accounting books.
But through reframing or restructuring, the materials are translated further into
estimates or statements which the management can use to discharge its function more
Accounting has assumed a hetero-dimensional nature of accounting. It is a dynamic
science expanding its horizon of application regularly.
5.Man-made system:
Accounting is a man-made system, which must be evolved out and adjust itself with
the changing need of mankind it is the primary nature of accounting.
6.Accounting is a process:
It is defined as a process because it performs some specific task, consisting of
collecting, processing, and communicating financial information. It is another nature of
7.Monetary Events:
The basis of accounting is the economic event which refers to the incidents that cause
changes in the financial position of the concern.
8.Accounting is a means and not an end:
As a language of the business, accounting is used to communicate business information
to the interested users of that, so that vital decision may be taken.
Keeping of accounts itself can never be the primary objective of an enterprise rather the
objective is to know the financial performance of a particular period or the financial
position of the enterprise on a particular data.
Thus, it is not an end with merely reporting the financial results of the concern to the
users but also pave the way of decision making. It is the main nature of accounting.
Nature of accounting Functional view point :
1.Accounting related to Identifying, Measuring, and Communicating
Accounting Information:
Form the different definitions given it is clear that accounting is involved with
recording, classifying, summarising, finalizing, interpreting, and communicating
financial information.
It is a body of systematic knowledge, principles, and techniques by applying which
financial data is translated into final information and communicated to the users of
accounting information.
2.Accounting related to identification of transactions:
During an accounting period, many events may take place is a concern. Some of
these have financial impacts and some others are of non-financial nature. Accounting
identifies those events which are fully or partly of financial nature.
It records only those events as a transaction. Events that create no change in the
financial position like inter-departmental transfers of employees in the same cadre –
are not identified or recorded.
3.Accounting related to Measurement:
Accounting is associated with the measurement of resources, claims against such
resources, and the owner’s interest in an accounting concern. It helps to measure the
change in the sied resources. The measurements are made in terms of money.
Maurice Moonitz in his writing “The Basic Postulates” indicated five major
functions of accounting. Three of these are related to the measurement aspect.
4.Accounting related to Communication of Accounting Information:
A business entity has to take decisions and trade policies on the basis of information
submitted by accounting. Accounting information portrays the significance of periodic
transactions individually and collectively.
Necessary information is analyzed, processed, and reported to the different users
like owners, employees, management, etc. Accounting information is communicated
not only through the periodic Revenue statement and balance Sheet but also through
different statements like Fund Flow Statement, Cash Flow statement, etc.
Such information is also provided to fulfill different legal obligations concerning tax
returns, payment of minimum bonus, etc. Finally, the success of Accounting depends on
the effective communication of information related to the maximum possible utilization
of scarce resources.
Quick Revision
i. Accounting is an art as it needs special skills and expertise in performing accounting.
Accounting is a science as it is based on predefined principles and rules.
ii. Accounting is a process, as it performs a step by step task of collecting processing and
communicating the information.
iii. Accounting is an economic history related to an accounting unit and recorded by the
accountant concerned.
iv. Accounting is a man-made system.
v. Accounting is involved with recording, classifying, summarising, finalizing,
interpreting, and communicating financial information.