Introduction to Accounting

Identification : It means determining what transactions to record, i.e., to identity events which are to be recorded. It involves observing activities and selecting those events that are of considered financial character and relate to the organisation. The business transactions and other economic events therefore are evaluated for deciding whether it has to be recorded in books of account. For example, the value of human resources, changes in managerial policies or appointment of personnel are important but none of these are recorded in books of account.

However, when a company makes a sale or purchase, whether on cash or credit, or pays salary it is recorded in the books of account. Measurement : It means quantification (including estimates) of business transactions into financial terms by using monetary unit, viz. rupees and paise as a measuring unit. If an event cannot be quantified in monetary terms, it is not considered for recording in financial accounts.

That is why important items like the appointment of a new managing director, signing of contracts or changes in personnel are not shown in the books of accounts. Recording : Once the economic events are identified and measured in financial