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Accounts concept
difination part 1
Question | Answer |
---|---|
Business Entity Concept | This states that the financial affairs of a business should be completely seperate from those of the owner. |
Going concern Concept | This assums that a business will carry on trading for the foreseeable future. In order words, it is not expected to close down to be sold. |
Money Measurement Concept | This states that financial records, including the value of transactions, assets, liabilities and capital, should be expressed in monetary terms. |
Objectivity Concept | As far as possible, accounts should be based on verifiable evidence rather than kon personal opinion. Inorder words, they should be OBJECTIVE rather than SUBJECTIVE. |
Historical Cost Concept | This stated that accounting should be based on the orginal costs incurred in a transation. This historical cost of an asset can be verified by documentatary evidence such as an invoice. This should allow the valuation to be objective. |
Realisation Concept | This states that revenue should not be reconised until the exchange of goods or services has taken place. |
Merteriallity Concept | Accountants should not spend time trying to record accurately any items that trival or immeterial. |
Prudence Concept | Accountants should be catious when reporting the financial position of a business. They should understate profits or the value of assets than to overstate them. |
Periodic Concept | Assumes that the economic of a business can be divided into different periods. |
Full Disclosures Principle | All pertient and relevant information should be disclosed in the financial statements. |
Accruals Concepts | The ACCRUALS concept states that revenue should be recognised when it is earned and not when the money is received. |
Matching Concepts | The MATCHING concept states that, in calculating profits, revenue should be matching against the expendiure incurred in earning it. |