The basic purpose of accounting is to provide quantitative financial information about economic activities intended to be useful in making economics decisions.
Types of Accounting Accounting Information
These are the 3 types of information provided by accounting:
- Quantitative information- this is information that is conveyed in numbers, units or quantity.
- Qualitative information- qualitative information is conveyed in words or descriptive form. This type of information is primarily found in the notes to financial statements and also on the face of the other financial statements.
- Financial information- financial information is conveyed in terms of money. Financial information is also classified as quantitative information because monetary amounts are expressed numerically.
For accounting information to be useful, it should be stated in a common denominator. For instance, currencies denominated in foreign currencies should be translated to the legal tender of the reporting entity (e.g., dollars).
Types of accounting information classified as to the needs of users
- General purpose accounting information- this information is designed to satisfy the common needs of most financial statement users. This information is provided under financial accounting. General purpose accounting information is governed by the generally accepted accounting principles (GAAP) represented by the International Financial Reporting Standards (IFRSs).
- Special purpose accounting information- this information is designed to satisfy the specific needs of certain users. Special purpose accounting information is provided by other types of accounting save for financial accounting like managerial accounting.
Sources of information in financial statements
Information found in the financial statements is not obtained entirely from the accounting records of the entity. Some information embodied in the financial statements are obtained from external sources. Resolutions of uncertainties of losses on pending law suits, fair value management and related disclosures, commitments, information on contingent liabilities, risk management policies, and capital management are only several of the various information counted in in the financial statements that are acquired from external sources.