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Principles and QC

For VCE Accounting

Entity The business must be a separate accounting entity from its owner and from other entities. It is important to identify for whom the preparation of financial reports is being conducted.
Reporting period The ongoing life of a business is broken into regular intervals of time for the preparation of financial reports. Under accrual accounting profit is revenue earned less expenses incurred in that period.
Conservatism It is acknowledged that gains will not be recognised until earned and losses will be recognised as soon as they are likely to occur. This principle is followed so as not to overstate assets and revenues and not understate liabilities and expenses.
Historical cost All transactions are recorded at their original value.
Going concern the business will have an indefinite life. The purpose of this rule is so that a distinction can be made between assets, which will provide benefit to future reporting periods, and expenses that are totally consumed within one reporting period.
Consistency The accounting methods used by the business should be applied consistently from one reporting period to another. This allows valid comparisons of performance to be made.
Monetary unit To understand the meaning of the reported information it is necessary to use a common unit of measurement. Australian dollars are used as this measure.
Relevance Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluation.
Reliability Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent.
Comparability Users must be able to compare the financial reports of an entity through time to identify trends in the entity’s financial position and performance.
Understandability An essential quality of the information provided in financial reports is that it is readily understandable by users.
Created by: lochers