Flashcards
accounting concept
Cards in this deck (12)
- 1what's the point of accounting concept?accounting concept are fundamental rile that ensure everyone treats particular situations the same way. the concept is vital for anyone preparing accounting records because they provide guide lines of treatment of new and unfamiliar problems. in result accounting statements can be confident in the information because the content would have been very much the same whichever accountant had prepared it. You may feel that some on the concept seem like common sense.
- 2objectivitywherever possible accounting information should be factual rather then someone's opinion. Accountants prefer fact rather then opinion because facts can be more agreeable whereas someone's opinion can be disputed. The objectivity concept is at the heart of any rule about valuing assets.
- 3costThe assets should be valued at cost. This is because this is objective valuation rather than a matter of opinion.
- 4Going concernThose preparing financial statements are to assume that the business continue to trade for the foreseeable future( at least one year). As a result the possible resale value of assets can be definitely be ignored, because the assumption is that the assets are not for sale. In other words, the going concern concept supports the idea of using cost as the basic valuing assets.
- 5AccuralsProfit should be calculated for a period of time, ensuring that revenue for that period is matched with the expenses incurred in the earnings that revenue. The accrual concept is the fundamental rule about how much profit should be calculated. it means the profit are based on revenue and expenses for a time period for many of the special features of financial statements such as making adjustments for unsold inventory and for expenses due or unpaid.
- 6How to apply the accrual concept?Closing inventory: when preparing an income statement it is important to deduct closing inventory from the cost of sales. although this inventory will have been paid for during that period it is really a cost for the next period when the goods are sold.
Deprecation:when preparing an income statement it is important to include an estimate of contribution made by each non-current asset to earning the business's revenue for that period even though the payment for non-current assets will probably have been made several years before.
Expense adjustment: the amount of an expanse for the trading period is quite often out of the step with the amount actually paid. As a result it is necessary to take account of he amount sue but unpaid or amount paid in advance when preparing financial statement - 7Consistancythe constancy concept requires businesses to apply the same accounting procedures and polices from one financial period to the next. this ensures that financial statement are prepared in the same way as each year. As a result the user of the financial statement can feel confident. that comparisons that make will have some validity.
- 8prudenceWhere there is doubt, asset value and profits should be understated rather than overstated. This rule called prudence concept, ensures that those who have a stake in a business are not misled into thinking that the business is doing better than it really is.
- 9Materialitythe materiality concept concerns the treatment of certain item when preparing financial statements. The rule require that care should be taken to ensure that all information provided is significant to the users of the statement, i.e. it should matte. In other words, trivial items not be included
- 10realisationAt the heart of the realisation concept is the idea that revenue should be recognised when it is certain. In other words a sale should only be included in a business's profit calculations for a financial period if cash has already been paid or there is a promise to pay cash. in practice a sale is regarded as certain when cash has been paid or an invoice had been issued.
- 11Business entityThe idea behind the business entity concept is that transactions recorded in an organisation's account can only relate to that organisation. In other words, transactions relating to the owner's private affairs cannot be recorded in the accounts of the organisation .
- 12Applying the concocts to the valuations of inventoryinventory valuation provides a good example of how concepts are applied. In particular two concepts features in an important rule about inventory valuation cost and prudence. inventory like any asset should be valued at cost.
however the prudence concept states that where there is doubt asset values should be under-rather then overstated.
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- A Levels accounting Flashcards on accounting concept, created by LiaAndrade on 26/04/2015.
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- LiaAndrade · Apr 2015
- Updated
- Feb 19, 2016
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