— Kishore V, SME and ACW at Edumarz
The accounting procedure culminates in the financial statements. The financial statements not only reflect the company’s real financial status, but they also assist various accounting users in making decisions and developing policies. The nature of financial accounts is determined by a variety of factors, including documented facts, traditions, concepts, and personal opinion.
1. Recorded facts- The things in the financial accounts are recorded at their original cost, which is the price at which they were purchased. As a result, the current market price of the products is not disclosed in financial statements. In addition, financial accounts do not account for inflationary consequences.
- Accounting conventions– Financial statements are prepared using accounting conventions such as the Prudence Convention, Materiality Convention, Matching Concept, and so on. Financial statements that follow such accounting conventions are simple to understand, comparable, and reflect the company’s true and fair financial position.
3. Accounting Assumptions Postulates are the basic accounting assumptions such as the Going Concern Concept, Money Measurement Concept, and Realization Concept. Certain precepts are followed when compiling financial statements. The nature of the financial accounts reflects the nature of these postulates. - Personal Value Judgements– Personal value judgments are crucial in determining the nature of financial accounts. Various judgements are associated with various methods of documenting transactions in financial accounts. Recording stock at market value or cost, for example, necessitates value judgement. Similarly, the amount of provision for specific assets, the mechanism of charging depreciation, and the time for writing off intangible assets are all up to individual discretion. As a result, personal judgements play a significant role in determining the form of financial statements.