What Are the Qualitative Characteristics of Accounting Information?

by Devra Gartenstein - Updated October 27, 2018

Accounting deals with numbers, but those figures relate to real-world situations that require background and depth for a full understanding. The qualitative characteristics of bookkeeping are the dimensions of the system which describe the relationship between the numbers and the scenarios they describe.

Primary Qualities of Accounting Information

The primary qualities of an accounting system's qualitative dimension are relevance and representational faithfulness, variables that are necessary for its information to be useful in making managerial decisions. A system's relevance determines its usefulness. You may be able to gather exhaustive data about the productiveness of each of your employees, but if you are about to purchase new machinery that will completely restructure your production system, this information will be largely irrelevant. It won't give you much of value for predicting future outcomes.

A system's representational faithfulness describes its relationship to what has occurred day-to-day in your business. To provide this faithful representation, bookkeeping information must be complete, that is, it must include every transaction that took place during the accounting period. It must also be free from error, with the entered information faithfully representing the transactions that occurred. Accounting information should also be neutral or entered without any bias that would slant a reading of the data towards a desired outcome or interpretation.

Secondary Qualitative Characteristics

A system's secondary qualitative characteristics make its accurate, relevant data easier to use. Verifiability is the capacity to back up information. Receipts and invoices make accounting information verifiable, allowing you to dig deeper into the numbers on the page to determine their accuracy and relevance. Timeliness ensures that your schedule for entering and assembling information corresponds with the timing of your company's need for this data. Understandability refers to the way your information is organized and presented, and whether it is user-friendly. Comparability describes the way data is organized and presented across the accounting period, so you can easily find figures such as gross and net income, and compare these sums over time.

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The Importance of the Qualitative Side of Accounting

A lender or investor who looks at your accounting numbers will want to place your financial information into context to evaluate its trustworthiness. The verifiability and representational faithfulness of your accounting system provides a foundation for assessing its credibility and your worthiness as a loan or investment prospect. An outsider reviewing your bookkeeping information will probably only have a limited amount of time and patience to consider your accounting reports. Understandability and comparability make your data easier to grasp and absorb, and will minimize your chances of losing opportunities simply because you haven't presented information effectively.

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.

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