...Basic Accounting Concepts The basic accounting concepts are referred to as the fundamental ideas or basic assumptions underlying the theory and practice of financial accounting and are broad working rules for all accounting activities and developed by the accounting profession. The important concepts have been listed as below: • Business entity; • Money measurement; • Going concern; • Accounting period; • Cost • Dual aspect (or Duality); • Revenue recognition (Realisation); • Matching; • Full disclosure; • Consistency; • Conservatism (Prudence); • Materiality; • Objectivity. 2.2.1 Business Entity Concept The concept of business entity assumes that business has a distinct and separate entity from its owners. It means that for the purposes of accounting, the business and its owners are to be treated as two separate entities. Keeping this in view, when a person brings in some money as capital into his business, in accounting records, it is treated as liability of the business to the owner. Here, one separate entity (owner) is assumed to be giving money to another distinct entity (business unit). Similarly, when the owner withdraws any money from the business for his personal expenses(drawings), it is treated as reduction of the owner’s capital and consequently a reduction in the liabilities of the business. The accounting records are made in the book of accounts from the point of view of the business unit and not that of the owner. The personal assets and Theory base of Accounting25 ...
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...Advantages of accounting concepts, conventions and regulations. There are many advantages that accounting concepts have on financial statements. Four important accounting concepts that underpin the preparation of any sets of accounts one of which is going concern that helps an account to assume for any future problems that occur in a business. This helps companies to make future plans and gives them time to gather money to sort out any financial problems. Consistency also has an advantage in helping in accounting by users of accounts can make more meaningful comparisons of financial performance. Prudence helps investors sort out financial performance such as future problems and cost of the business before recognising any signs of profits. Accruals also help financial data to be useful for users by all business revenues and cost are recorded in the appropriate statements and at the appropriate time. Conventions also have many advantages in influences financial statements to be useful for investors. Separate entity is one example this convention seeks to ensure that all private transactions and matters relating to the owners are segregated from transactions that relate to the business. This is an advantage because owner’s transactions are kept private. Also they are not mixed with the business finance so that users can clearly see the business financial state. Also materiality is also an important convention in a business financial statement use for users. The preparation...
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...(a) A number of accounting concepts and conventions have been used by the accountant as a guide in preparing the accounts. These concepts and conventions have been derived over the years from the general accounting practices. Critically discuss the purpose of accounting concepts and conventions and its importance and contribution towards preparing the accounting reports. Purpose of Accounting Concepts The main aim for accounting concept is to maintain the uniformity and consistency in accounting records. These concepts constitute the very basic and premise of accounting. All the concepts have been created and developed throughout the years from experience and consequently they are all around acknowledged tenets. Accounting supposition and concept offer the bases in preparing, presenting and displaying even in interpreting general-purpose financial statements. There are some important accounting concepts that support the readiness and preparation of any accounting arrangement or financial statements such as Going Concern Concept, Consistency Concept, Prudence Concept, and Accruals Concepts. For example, Going Concern Concept is a company or organizations will not be going to bankrupt unless there have a confirmation and evidence to the contrary and this is supported by accountants. Purpose of Accounting Conventions An accounting convention refer to regular and common practices which are all around followed in recording and exhibiting accounting data and information...
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...Accepted Accounting Principles Introduction Need of Accounting Principles Generally Accepted Accounting Principles Characteristics of Accounting Principles Objectivity Application Reliability Feasibility Understandability Accounting Concepts Separate Entity Concept Money Measurement Concept Dual Aspect Concept Going Concern Concept Cost Concept Period Accounting Period Concept Periodic Matching of Costs and Revenues Concept Realisation Concept Accounting Conventions Conservatism Consistency Materiality Full Disclosure Your Check Your Understanding Descriptive Questions Interview Questions Accounting for Managers 24 2.1 INTRODUCTION Accounting is the language of business. When we speak in any language, our intention is our ideas are to be understood by others. Language can be understood only when words used by us convey the same meaning to the listener. Both the speaker and listener should mean the same for the words used. Equally, every language has grammar of its own. When we write or speak, we follow the principles of grammar. Similar is the case with accounting. Most of the activities, be it official, social or personal, are guided by a set of certain rules or conventions. Some of the conventions are as follows: ♦ In India, we always drive on the left hand side of the road. ♦ Overtaking the vehicle, either two-wheeler or four-wheeler, is to be made on the right side, alone. ♦ As a citizen of India, we are guided by certain rules...
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...ACCOUNTING CONCEPTS AND CONVENTIONS INTRODUCTION In all activities (whether business activities or non-business activities) and in all organizations (whether business organizations like a manufacturing entity or trading entity or non-business organizations like schools, colleges, hospitals, libraries,clubs,temples, political parties) which require money and other economic resources, accounting is required to account for these resources. In other words, wherever money is involved, accounting is required to account for it. Accounting is often called the language of business. The basic function of any language is to serve as a means of communication. Accounting serves this function and much more. Accounting is an art of recording, classifying, analyzing and summarizing in a significant manner and in terms of money, transactions and events which are in part, at least, of a financial character, and interpreting and communicating the results thereof. There are certain guidelines and practices that are followed while recording transactions and in preparing financial statements. Such guidelines and practices have been developed on the basis of globally accepted accounting standards. Such principles are called Generally Accepted Accounting Principles (GAAP). GAAP’s foundation is built on the basic principles of accounting concepts, conventions and accounting standards. Accounting principles refers to certain rules, procedures and conventions which represent a consensus view by...
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...and Conventions of Accounting Accounting is defined as an art of recording, classifying, summarizing and presentation of financial information. Accounting ultimate produces the financial information being used by different interested parties in the organization, the relationship may be direct or indirect. For such presentation, we need certain set principles so that the possibility of presenting the information may not be flexible enough. So keeping in view of this objective, it is required that the presented accounts of different companies are uniform and understandable by the user, principles are required. Principle guides the way the accounts to be prepared. These principles are fundamental guidelines which provide standards for scientific accounting practices. The accounting records of an organization need to be maintained as per the requirement and guidelines developed by the professional body of the country. Different accounting bodies are statutory body in their country for developing the new standards and for improvement in the existence standards. The purpose of accounting standards is to give a most unambiguous way to present the financial statement of a business organization so that it gives a clear understanding about the functioning of it to the target reader. Accounting Conventions are methods or procedures which are widely acceptable. When we record or interpret a transaction, it follows convention. Many times, the meaning of the words principles, concepts and...
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...and Disadvantages of Convention and Concept Advantages of accounting concepts, conventions and regulations. There are many advantages that accounting concepts have on financial statements. Four important accounting concepts that underpin the preparation of any sets of accounts one of which is going concern that helps an account to assume for any future problems that occur in a business. This helps companies to make future plans and gives them time to gather money to sort out any financial problems. Consistency also has an advantage in helping in accounting by users of accounts can make more meaningful comparisons of financial performance. Prudence helps investors sort out financial performance such as future problems and cost of the business before recognising any signs of profits. Accruals also help financial data to be useful for users by all business revenues and cost are recorded in the appropriate statements and at the appropriate time. Conventions also have many advantages in influences financial statements to be useful for investors. Separate entity is one example this convention seeks to ensure that all private transactions and matters relating to the owners are segregated from transactions that relate to the business. This is an advantage because owner’s transactions are kept private. Also they are not mixed with the business finance so that users can clearly see the business financial state. Also materiality is also an important convention in a business financial...
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...equality, inclusion and democracy. While Von Treitscheke - Writings struggles to grasp the main concepts, the Ohio Women’s Convention successfully demonstrates acknowledgement regarding the ideas and therefore agrees with the emergence of nationalism based on those prospects. Both articles differ in the way they approach nationalism and view the term as two very different concepts, one as the basis for equality, inclusion and democracy, therefore agreeing with the lecturing view of nationalism, while the Von Treitscheke interpretation regarded power, authoritarianism, and militarism. The strive for equality is still...
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...and Disadvantages of Convention and Concept Advantages of accounting concepts, conventions and regulations. There are many advantages that accounting concepts have on financial statements. Four important accounting concepts that underpin the preparation of any sets of accounts one of which is going concern that helps an account to assume for any future problems that occur in a business. This helps companies to make future plans and gives them time to gather money to sort out any financial problems. Consistency also has an advantage in helping in accounting by users of accounts can make more meaningful comparisons of financial performance. Prudence helps investors sort out financial performance such as future problems and cost of the business before recognising any signs of profits. Accruals also help financial data to be useful for users by all business revenues and cost are recorded in the appropriate statements and at the appropriate time. Conventions also have many advantages in influences financial statements to be useful for investors. Separate entity is one example this convention seeks to ensure that all private transactions and matters relating to the owners are segregated from transactions that relate to the business. This is an advantage because owner’s transactions are kept private. Also they are not mixed with the business finance so that users can clearly see the business financial state. Also materiality is also an important convention in a business financial...
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...business firm will close its operations in the near future. A business firm whose status is going concern reports assets based on their historical value. Similarly, assets carry a book value equivalent to the difference between their historical value and accumulated depreciation. Under this assumption, market values are ignored as the business firm will continue operating indefinitely. Accounting Entity Assumption: Basically, the accounting entity assumption is the same as the business entity principle. In this system, a business firm is considered a separate and distinct entity from its owner. The accounting entity assumption calls for the separation of accounting records between a business firm and its owner. Time Period Concept: The time period concept holds the idea that business transactions should be recorded when they occur. Recording of business transactions should be done within the course of the business firm’s operating period – either at a fiscal year...
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...Conclusions Accounting Concepts and Conventions Introduction Accounting concepts and conventions as used in accountancy are the rules and guidelines by that the accountant lives. All formal accounting statements should be created, preserved and presented according to the concepts and conventions that follow. In the United Kingdom, four of the following accounting concepts are laid down in Statement of Standard Accounting Practice number 2 (SSAP 2: Disclosure of Accounting Policies), they are the * Going concern concept * Accruals or matching concept * Consistency concept * Prudence concept Going concern This concept is the underlying assumption that any accountant makes when he prepares a set of accounts. That the business under consideration will remain in existence for the foreseeable future. In addition to being an old concept of accounting, it is now, for example, part of UK statute law: reference to it can be found in the Companies Act 1985. Without this concept, accounts would have to be drawn up on the 'winding up' basis. That is, on what the business is likely to be worth if it is sold piecemeal at the date of the accounts. The winding up value would almost certainly be different from the going concern value shown. Such circumstances as the state of the market and the availability of finance are important considerations here. Accruals Otherwise known as the matching principle. The purpose of this concept is to make sure that all revenues...
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...money Conclusions Accounting Concepts and Conventions Introduction Accounting concepts and conventions as used in accountancy are the rules and guidelines by that the accountant lives. All formal accounting statements should be created, preserved and presented according to the concepts and conventions that follow. In the United Kingdom, four of the following accounting concepts are laid down in Statement of Standard Accounting Practice number 2 (SSAP 2: Disclosure of Accounting Policies), they are the Going concern concept Accruals or matching concept Consistency concept Prudence concept Going concern This concept is the underlying assumption that any accountant makes when he prepares a set of accounts. That the business under consideration will remain in existence for the foreseeable future. In addition to being an old concept of accounting, it is now, for example, part of UK statute law: reference to it can be found in the Companies Act 1985. Without this concept, accounts would have to be drawn up on the 'winding up' basis. That is, on what the business is likely to be worth if it is sold piecemeal at the date of the accounts. The winding up value would almost certainly be different from the going concern value shown. Such circumstances as the state of the market and the availability of finance are important considerations here. Accruals Otherwise known as the matching principle. The purpose of this concept is to make sure that all revenues...
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...Audit theory and true and fair view The Primary objective of auditing is to produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading and using them can have belief in them. Different methodology can be used to arrive at his opinion: Vouching audit: Vouching means "such examination of the ledger entries as will satisfy an auditor not only that the entry is supported by documentary evidence but that it has been properly made upon the books of account". b. The emphasis is on ascertaining- i) That every entry in the books of account is supported by a voucher and that no voucher has gone unrecorded in the books of account; ii) That the transaction is genuinely concerned with the business iii) That the amount involved in the transaction has been accurately recorded and iv) That the entry has been made correctly in the appropriate account C. The main objectives of vouching are: a. All transactions connected with the business have been properly recorded in the books of account b. The entries in the books of account pertain to transactions which are genuinely connected with the business c. The vouchers in support of the entries are legally valid, in the sense that they are authentic, properly dated, addressed to the business of the client, and are not fraudulent in any respect d. The vouchers have been carefully processed through each stage of an effective system of internal check e. The vouchers...
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...I- Chapter1: Introduction: The Second World War is known for its gross Human Rights violations and for its aftermath that gave rise to numerous conventions for the protection of Human Rights in the post war era. Therefore, some very important facts left our memories but with wonder, regarding atrocities culminating to the Holocaust, that were a result of forced or enforced disappearances constituting a crime against humanity. It stood for a strategy of the Nazi regime in 1941 that led to the extermination of more than the double of the current total Jews population and inevitably lead to irreparable losses. In this memoir, the main concern is to situate the origin of the phenomena of forced disappearance which creates victims between the disappeared and their families; hence the calls for reparation remain unavoidable and fundamental for the sake of justice and peace. The notion of Forced or enforced disappearance is ambiguous and complex....
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...ADMINISTRATION (Hons) Entrepreneurship Bachelor OF ECONOMICS (Hons) Financial Economics UBAF1033 BUSINESS ACCOUNTING I TUTORIAL 3: ACCOUNTING CONCEPTS AND CONVENTIONS Adopted from: Wood, F. & Sangster, A. (2012), Business Accounting 1 (12th ed ); Thomas A. & Ward, A. M. (2009), Introduction to Financial Accounting (6th ed); Roshayani, A., Laily, U. & Siti Maznah, M., (2007), Financial Accounting An Introduction (2nd ed); Past year Business Accounting I Questions MULTIPLE CHOICE QUESTIONS 1. What accounting concept / principle describe the following statement? “All business transactions shall be expressed in common money terms to facilitate comparison & evaluation purposes”. (Woods, F., 2007, p.108) A Matching B Materiality C Monetary D Substance over form 2. “The business entity concept requires that a business is to be treated as separate from its owner, able to enter into business transactions on its own and be treated as a ‘legal person’” Is this statement true or false? A True B False 3. Which of the following statements are correct? (1) Materiality means that only items having a physical existence may be recognised as assets. (2) The materilaty concept indicated that those items that are not significant should be recorded. (3) The money measurement concept is that only items capable of being measured in monetary terms can be recognized in financial statements. (Woods, F., 2007, p.108 and 112) ...
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