fabm chap 6 and 7

• Accounting concepts and principles are widely accepted sets of rules and standards that guide accountants in the application of accounting and preparation of financial statements
• These principles are also known as the "characteristics of the financial statements"
• Relevance in accounting ensures that information helps users of financial statements make correct decisions based on past performance and correct past mistakes
• Reliability in accounting means that information can be depended on to be accurate and faithfully represented
• The Matching Principle requires that revenues and expenses must be recognized and charged to the income statement in the accounting period in which they are earned (revenues) and incurred (expenses)
• Timeliness in accounting refers to the need for all accounting information to be presented to users of financial statements on time for rightful decision-making
• Neutrality in accounting requires that information in financial statements is free from bias and reflects a fair and balanced view
• Prudence in accounting requires caution in making significant estimates on asset valuation and recording of income and expenses
• Completeness in accounting ensures that information in financial statements is reliable if it is completely provided to users and decision-makers
• The Single Economic Entity Concept considers a parent-subsidiary relationship as a single economic unit, presenting one consolidated financial statement for the group
• The Separate Entity Concept indicates that the business is separate and distinct from the owner, keeping financial transactions separate from personal finances
• The Money Measurement Concept states that transactions and events recorded in the books of accounts should be measured in monetary terms
• Comparability in accounting means that one accounting period must be comparable to another for users to determine meaningful conclusions about the organization's financial affairs
• Understandability requires that transactions and events in financial statements are presented in a way that is easily understandable by users
• Materiality in accounting depends on the decision-making needs of users
• The Going Concern assumption in financial statements assumes that a business entity will continue to operate in the foreseeable future
• The Accruals Concept means that income and expenses must be recognized in the accounting periods to which they are incurred
• Substance Over Legal Form principle requires transactions and events to be recorded in financial statements based on their economic substance rather than just their legal form
• Revenue Recognition Principle states that revenue is recognized when it is earned, regardless of whether payment has been received
• The Accounting Equation is Assets = Liabilities + Equity, showing the resources owned by the business and the resources applied by outside creditors and owners