Accounting Concepts

Accounting Concepts

1. Going Concern

   • When accounts are prepared it is assumed that the business is going to continue to operate for the foreseeable future and assets are recorded at cost

2. Accruals

   • Income Statements should be based on income and expenditure not receipts and payments- namely the amounts due for the year rather than the amounts which have gone through the business bank and cash accounts

3. Prudence

   • Accountants always consider the worst case scenario and understate, rather than overstate profits and asset values.
     • Profits and Liabilities should be understated. Losses should be above what is expected.

4. Consistency

   • This means that once an accounting policy has been decided, the firm should continue to use the same policy in subsequent years when preparing financial statements.

5. Realisation

   • Sales are recorded when the custom physically removes the good and the business raises a sales invoice, and purchases when a supplier delivers the goods

6. Entity

   • The owner of a business is/are regarded as completely separate from the business

7. Materialilty

   • When making the distinction between capital or revenue items. It is only necessary to make this distinction if it makes a material (significance) difference

8. Dual Aspect

   • For every Dr entry, there must be a matching CR entry.

9. Objectivity

   • Accountants should not how personal bias and transactions should be based on evidence such as source documents

10. Cost

    • A company records assets on the Statement of Financial Position at historical cost which is how much the business originally paid for an asset.