Which qualitative feature of accounting is reflected in the following cases a free from personal bias?

Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.

From the above, answer the following :
1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner.

The following are all qualitative characteristics of financial statements.

Understandability

The information must be readily understandable to users of the financial statements. This means that information must be clearly presented, with additional information supplied in the supporting footnotes as needed to assist in clarification.

Relevance

The information must be relevant to the needs of the users, which is the case when the information influences their economic decisions. This may involve reporting particularly relevant information, or information whose omission or misstatement could influence the economic decisions of users.

Reliability

The information must be free of material error and bias, and not misleading. Thus, the information should faithfully represent transactions and other events, reflect the underlying substance of events, and prudently represent estimates and uncertainties through proper disclosure.

Comparability

The information must be comparable to the financial information presented for other accounting periods, so that users can identify trends in the performance and financial position of the reporting entity.

There are some qualities of accounting that make it useful for both external and internal users of accounting. Without these qualities accounting information wouldn’t be clear and an orderly view of the business would not be visible. 4 qualitative characteristics of accounting information are;

Comparability

Comparison is a very important part of financial information as it helps the users of accounting information to differentiate, analyze, improve, and take important decisions.

The ability to do intra-firm comparison (within the same company), inter-firm comparison (with other companies), and market sector comparison (comparison within the same market sector) makes accounting information easy to work with.

Example of Comparability – QoQ (Quarter on Quarter) & YoY (Year on Year comparisons) should be possible with the accounting information.

Understandability

The presentation of accounting information should be simple and understandable for the users of the information. It is important that all the data is clear and concise, it can be easily understood by everyone including parties who are not from the accounting background.

All relevant explanatory notes should be provided along with the financial statements. Method of valuation of inventory, method of depreciation, information on reserves and surplus, contingent liabilities, and any other extraordinary items.

Example of Understandability – It should be possible for bankers, investors, employees, etc. to understand financial information of the business.

Reliability

One of the most important among qualitative characteristics of accounting information is reliability of data, i.e. all information provided must be traceable and verifiable with proper source documents.

In case of an internal or an external audit the information inside financial statements should be confirmable back to its original source. Failure of an audit may lead to disbelief in the company’s financial data.

Example of Reliability – An auditor must be able to verify a transaction back to its origin with the help of invoices, memos, purchase order, sales order, etc.

Relevance

Relevance of accounting information means it should help the user of information with their decision making process. The information provided should not be irrelevant and unnecessary. All information should be capable of monetary computation.

Example of Relevance – A firm is expected to provide the total amount owed by the debtors in the balance sheet, whereas the total number of debtors is not important.

Which qualitative feature of accounting is reflected in the following cases unnecessary and irrelevant information is not included in financial statements?

Which qualitative characteristics of accounting information is reflected when the accounting information is free from errors?

What are the qualitative features of accounting?

Which qualitative characteristic of accounting information is depicted by verification of documents?