Accounting Concepts Definitions Part : 11 ( understandability in accounting )

Accounting Concepts Definitions Part : 11

understandability in accounting

Understandability in accounting

The accounting method of recording and disclosing is better seasoned when they are understood and complete. Here, understanding doesn’t mean the understanding by the higher ups inside the entity but by those who are outside. Because, insiders can get the data modified to their liking by the accountants they have in their disposal.

This principle states:

“Accounting data is meant to be completely convincing and clear to the users of the data either insider or outsider.”

This is why whenever you take an annual report you will notice that there are many graphs and charts to make the data better understood even to the commoners.

Example

The annual reports of any company doesn’t only put the financial statements, notes to the financial statements and the messages from the company top tiers, but also puts different graphs and charts.

These make the data completely understandable to even the most commoner. Because, such things give a complete overview in a very short time (Which can be within minutes).

This is how the understandability principle works.

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