Objectivity Concept in Accounting Notes for the UGC-NET Exam

Objectivity is a concept that refers to the unbiased and impartial presentation of information, opinions, or observations without personal feelings, interpretations, or influence. In various fields such as journalism, science, and research, objectivity is a fundamental principle that aims to ensure fair and unbiased treatment of information. It is the opposite of subjectivity, where personal perspectives, emotions, or biases may impact the interpretation and presentation of information.

Objectivity concept in accounting is a vital topic to be studied for the commerce related topics such as the UGC-NET Commerce Examination.

In this article the readers will be able to know about objectivity concept in accounting in detail along with other related topics.

What is Objectivity Concept in Accounting?

In simple terms, the objectivity concept in accounting means being fair and honest when recording financial information. It's like being a referee in a game—you have to make calls based on what actually happens, not on personal feelings or opinions.

In accounting, this means using facts and evidence to record transactions accurately, without letting personal bias or preferences influence the numbers. For example, if a company earns $100 in revenue, the accountant should record exactly $100, even if they personally think it should be more or less.

Objectivity ensures that financial statements are reliable and trustworthy, giving investors, lenders, and other users confidence in the company's financial health.

Example of Objective Evidence Concept in Accounting

An example of objective evidence in accounting is the use of bank statements to verify the accuracy of cash transactions recorded in a company's financial records.

Let's say a company records a cash receipt of $1,000 from a customer for goods sold. To ensure the accuracy of this transaction and provide objective evidence, the accountant can compare the amount recorded in the company's cash receipts journal with the corresponding deposit shown on the bank statement.

If the $1,000 cash receipt is indeed deposited into the company's bank account and reflected in the bank statement, it serves as objective evidence that the transaction was properly recorded. This verification process helps ensure the reliability and accuracy of the company's financial records by relying on verifiable evidence from an independent source—the bank statement.

In this example, the bank statement acts as objective evidence, providing an external confirmation of the cash receipt transaction recorded by the company.

Objective Evidence Concept in Accounts

In accounting, the concept of objective evidence refers to the use of verifiable and reliable information to support financial transactions and events recorded in the books of accounts. Objective evidence serves as independent confirmation of the occurrence and accuracy of these transactions, enhancing the reliability and credibility of financial reporting.

Examples of objective evidence in accounting include:

• Bank Statements: Bank statements provide independent verification of cash transactions, such as deposits, withdrawals, and bank charges, recorded in the company's books.
• Invoices and Receipts: Invoices issued to customers and receipts obtained from suppliers serve as objective evidence of sales and purchases transactions, respectively.
• Contracts and Agreements: Written contracts and agreements provide objective evidence of legal obligations, commitments, and arrangements entered into by the company.
• Purchase Orders: Purchase orders issued to suppliers and vendors serve as objective evidence of orders placed for goods or services.
• Shipping Documents: Shipping documents, such as bills of lading and delivery receipts, provide objective evidence of the shipment and receipt of goods.
• Audit Trails: Audit trails, including supporting documentation, reconciliation reports, and audit logs, serve as objective evidence of internal controls, compliance, and the reliability of financial data.

By relying on objective evidence, accountants ensure that financial transactions are accurately recorded and properly supported, enhancing the transparency, reliability, and integrity of financial reporting. This contributes to informed decision-making by stakeholders and fosters trust and confidence in the company's financial information.

Conclusion

The concept of objectivity is essential for maintaining the integrity and reliability of financial reporting in accounting. By adhering to objective standards and principles, accountants ensure that financial information is based on verifiable evidence, free from bias or personal judgment. This enhances the credibility of financial statements, facilitating informed decision-making by users such as investors, creditors, regulators, and other stakeholders. Upholding objectivity in accounting practices is crucial for promoting transparency, accountability, and trust in the financial reporting process.

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