Chapter 16: The Accounting Concepts

• Concept

  Concept are rules or guidelines that help to ensure consistency and accuracy in how financial transactions are recorded.
• Going Concern

  Going Concern is the assumption that a business will continue to operate and remain solvent in the foreseeable future
• Cost

  Cost is when the asset should be valued at their historical cost.
• Consistency

  Consistency is when a business adopts a particular accounting policy or method and should continue to use it from one financial period to the next.
• Objectivity

  Objectivity is when accounts should be prepared on an objective rather than subjective basis. Not influenced by personal feelings
• Materiality

  Materiality is the record of significant information that could influence the financial statement and decisions. If it's a low monetary value then it is not worthwhile recording them separately and may be left out.
• Money Measurement

  Money measurement is only transactions and events that can be expressed in monetary terms are recorded.
• Prudence

  Prudence is being cautious when making estimates under conditions of uncertainty and minimise the chance of overstating profits and assets.
• Accruals

  Accruals is the recording of revenues and expenses when they are earned and incurred, regardless of when the money is actually received or paid.
• Realisation

  Realisation is a business transactions recorded in the financial statement when a legal exchange of ownership has taken place between buyer and seller. This may not be at the same time as payment is made.
• Entity (Business Entity)

  Business Entity is when the transactions of the owner and the business should be recorded separately.
• Duality

  Duality is for every transaction it has two impacts - a debit and credit entry.
• Why is it important to follow the accounting concepts?

  By following the same rules, the account should show a true and fair view of a businesses performance. The reason is to avoid people window dressing or manipulate the accounts.
• Whats the difference between realisation and accruals?

  Realisation is recognised when the sales is completed, it focuses on when the revenue is officially earned to be included in the financial statement

  Accruals deals with the timing of recognising the revenue and expenses, so the very instant even if cash wasn't received yet
• How many accounting concepts are there?

  11