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Karnataka Class 12 Commerce Accountancy Qualities of Information

Karnataka Class 12 Commerce Accountancy Qualities of Information

Karnataka Class 12 Commerce Accountancy Qualities of Information

Karnataka Class 12 Commerce Accountancy Qualities of Information : These qualities make accounting information understandable and useful for decision and reporting purposes: the goal of financial reporting is to provide useful information to current and potential investors, creditors, and other users of accounting information (e.g., government, standard-setting bodies) to make investment, credit, and other decisions.

When financial reports are generated by professional accountants, we have certain expectations of the information they present to us:

  1. We expect the accounting information to be reliable, verifiable, and objective.
  2. We expect consistency in the accounting information.
  3. We expect comparability in the accounting information.

Karnataka Class 12 Commerce Accountancy Qualities of Information

Accounting information properties 

1-      Useful for decision making

2-      Useful for making investment decisions, acquisition, merger and joint venture.

3-      Preparation of budgets, control the variances and reporting.

4-      Helps to enhance the revenue and control unnecessary expenses.

5-      Efficiency of assets to generate the revenue at maximum capacity.

Karnataka Class 12 Commerce Accountancy Qualities of Information

Because the accounting information connected to the beneficiaries of the most important of the main objectives of accounting must therefore be that this accounting information has characteristics make them useful to achieve their purpose. These properties can be classified into basic and appropriate reliability or the so-called include the possibility of relying on the information and sub-properties and include the possibility of a comparison can be summarized as follows: 

1) Appropriate: 

It is intended that the information that appears in the financial statements related to the decision or a link to be taken to be the same as any impact on the decision-maker Study oven cash flows of information of non-cash deemed inappropriate .

And determine the appropriateness of accounting information in three elements 

A) temporary: any information that comes at the right time delayed access to information wasted a lot of opportunities 

B) the predictive ability of information: Ian accounting information enables the decision maker of Thin forecast results for future events.

C) the possibility of verifying expectations: any help decision makers to review and correct the previous forecast of 

2) Reliability: 

Reliability means or the possibility of relying on the so-called information that is characterized by information objectivity, impartiality and sincerity of expression or representation of events supposed to reflect the accounting information is affected by the reliability of the following elements: 

(A) neutrality means stay away from bias-based, which is intentionally access to pre-defined service specific category of beneficiaries Results 

(B) objectivity means portability information for review by parties other than the party who prepared 

(C) information sincerity in the representation of the phenomenon or event is the subject of research and study 

3) Comparability: 

It means the possibility to make a comparison to the same established between different time periods or to make comparisons between facilities similar in the same activity, for example, compared to the sales of established similar of HR in the same industry. The value of accounting information increases with the increasing possibility of comparison is also worth noting that the possibility  between financial periods for the same entity affected by the extent of fortitude to follow the same accounting methods as ways and methods of calculating depreciation inventory valuation

Transaction Processing Systems (TPS) are among the earliest computerised systems catering to the requirements of large business enterprises. The purpose of a typical TPS is to record, process, validate and store transactions that occur in the various functional areas of a business for subsequent retrieval and usage. A transaction could be internal or external.

When a department requisitions material supplies from stores, an internal transaction is said to have occurred. However, when the purchase department purchases materials from a supplier, an external transaction takes place. The scope of financial accounting is confined to external transactions only. TPS involves following steps in processing a transaction.

In order to understand these steps, let us consider a case wherein a customer withdraws money using the Automated Teller Machine (ATM) facility, as described below :

Data Entry : The action data must be entered into the system before it is processed. There are a number of input devices to enter data: Keyboard, mouse, etc. For example, a bank customer operates an ATM facility to make a withdrawal. The actions taken by the customer constitute data, which is processed after validation by the computerised personal banking system.

Data Validation : It ensures the accuracy and reliability of input data by comparing the same with some predetermined standards or known data. This validation is performed by error detection and error correction procedures. The control mechanism, wherein actual input is compared with the standard, is meant to detect errors while error correction procedures make suggestions for entering correct data input. The Personal Identification Number (PIN) of the customer is validated with the known data. If it is incorrect, a suggestion is made to indicate that the PIN is invalid. After validating the PIN (which is also a part of processing by TPS), the amount of withdrawal being made by the customer is also checked to ensure that it does not exceed a certain limit.

Processing and Revalidation : The processing of data, representing actions of the ATM user, occurs almost instantaneously in case of the Online Transaction Processing (OLTP) system provided a valid data representing actions of the user has been encountered. This is called check input validity.

Revalidation occurs to ensure that the transaction in terms of delivery of money by ATM has been completed. This is called check output validity.

Storage : Processed actions, as described above, culminate into financial transaction data, which describe the withdrawal of money by a particular customer, are stored in transaction database of Computerised personal banking system. This implies that only valid transactions are stored in the database.

Information : The stored data is processed using the query facility to produce desired information. A database supported by DBMS is bound to have standard Structured Query Language (SQL) support.

Reporting : Finally, reports can be prepared on the basis of the required information content according to decision usefulness of report. A simple computerised accounting system accepts the complete transaction data as input; stores such data in computer storage media (say hard disk) and retrieves the accounting data for processing as and when required for generating an accounting report, as output. The input-process-output diagram shown below indicates as to how accounting software translates data into information.

This processing of data is accomplished either through Batch Processing or Real-time Processing. Batch Processing applies to large and voluminous data that is accumulated offline from various units: branches or departments. The entire accumulated data is processed in one shot to generate the desired reports according to decision requirement. Real-Time Processing provides online outcome in the form of information and reports without time lag between the transaction and its processing.

The accounting reports are generated by query language popularly called Structured Query Language (SQL). It allows the user to retrieve report relevant information that is capable of being laid out in pre-designed accounting report. Accounting software may be structured with such components as provide for storage and processing of data pertaining to purchase, sales, inventory, payroll and other financial transactions.

Karnataka Class 12 Commerce Accountancy Qualities of Information

Accounting information is general purpose and should be designed to serve the information needs of all types of interested parties. To be useful, information should be helpful in assessing an entity’s economic resources, claims against resources, and what causes changes in resources and claims.

Such assessments are generally benefited by accrual accounting, coupled with consideration of cash flows. Care must be taken to differentiate between resource changes resulting from economic performance and other factors (e.g., earnings vs. issuing additional shares of stock). The following qualities help to make accounting useful.

Karnataka Class 12 Commerce Accountancy Qualities of Information

Fundamental Qualities
RelevancyInformation should be timely and bear on the decision-making process by possessing predictive or confirmatory (feedback) value.
Faithful RepresentationInformation must be truthful; complete, neutral, and free from error.

Karnataka Class 12 Commerce Accountancy Qualities of Information

Enhancing Qualities
ComparabilityEven though different companies may use different accounting methods, there is still sufficient basis for valid comparison.
ConsistencyDeviations in measured outcomes from period to period should be the result of deviations in underlying performance (not accounting quirks).
VerifiabilityDifferent knowledgeable and independent observers reach similar conclusions.
TimelinessAvailable in sufficient time to be capable of influence.
UnderstandabilityClear and concise to those with reasonable business knowledge.

Karnataka Class 12 Commerce Accountancy Qualities of Information

Be aware of the growing complaint that accounting has become too complex. Many persons within and outside the profession protest the ever growing number of rules and their level of detail. The debate is generally couched under the heading “principles versus rules.” Advocates of a principles-based approach argue that general concepts should guide the judgment of individual accountants. Others argue that the world is quite complex, and accounting must necessarily be rules-based. They believe that reliance on individual judgment may lead to wide disparities in reports that could render meaningful comparisons impossible.

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Karnataka Class 12 Commerce Accountancy Qualities of Information

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Karnataka Class 12 Commerce Accountancy Qualities of Information Books to downloadDownload Link
  • Class 12 Accountancy Text book
  • Need for Maintaining of Accounts books by Non Profit Organisation

  • Accounting book 1

  • Accounting book 2
  • Accounting book 3

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