Accounting Concepts, Principles and Basic Terms Definition and introduction The worldview of accounting and accountants may certainly involve some unhelpful characters poring over formidable figures stacked up in indecipherable columns. However, a short and sweet description of accounting does exist:
These concepts provide a foundation for accounting process. No enterprise can prepare its financial statements without considering these concepts. Proprietor is treated as creditor of the business. For other business of proprietor different books are prepared. Transactions of qualitative nature, even though of great importance to business are not considered.
Because of this concept, outside parties enter into long term contracts with the enterprise. For taxation purposes financial year is adopted as prescribed by the Govt.
Companies having their shares listed on stock exchange publishes their quarterly results. This cost serves the basis for further accounting treatment of the asset. Acquisition cost relates to the past i.
Justified by going concern concept. Current values are difficult to determine. Difficult to keep track of up down of the market price. Information based on historical cost may not be useful to its members. If one is debited then the other one is credited with same amount. It is realised on three basis-: Basis of cash 3.
Following points must be considered while matching costs with revenue-: Closing stock should be carried over to the next period as opening stock. Same with the expenses i. Delay in providing accounts serves no usefulness for the users for decision making. This facilitates comparison in both directions i.
This does not mean that a firm cannot change the accounting methods according to the changed circumstances of the business. It is a policy of playing safe. Items having an insignificant effect to the user need not to be disclosed.The primary difference between accounting concept and convention is that while accounting concept is a fundamental notion or idea, whereas accounting convention is the accounting practices which are to be followed by the enterprise, as they are widely accepted by accounting bodies.
Accounting Conventions The most commonly encountered convention is the "historical cost convention". This requires transactions to be recorded at the price ruling at the time, and for assets to be valued at their original cost.
Accounting Concepts and Conventions 1) A business firm is separate and distinct from its owners is the assumption under which of the following accounting concepts: 1) Business Entity 2) Going Concern Entity 3) Money Measuring Entity 4) Accounting Period concept 5) None of the above 2) Assumption of accounting entity or business entity concept is.
Accounting Concepts are the assumptions and conditions on the basis of which financial statements of an entity are prepared. These are the concepts which are adopted by the organizations in preparation of financial statements to achieve uniformity in reporting.
Accounting Concepts vs. Conventions • Accounting concepts and conventions are a set of standard methodologies, guidelines and procedures when preparing financial statements, thereby ensure that accounting information is prepared in a manner which is consistent, true, fair and accurate.
Accounting Concepts and Principles are a set of broad conventions that have been devised to provide a basic framework for financial reporting. As financial reporting involves significant professional judgments by accountants, these concepts and principles ensure that the users of financial information are not mislead by the adoption of.