Accounting
concept
1. the
Going Concern concept
The business will continue into the foreseeable
future(one year)
2.the Accruals
concept
We take account of transactions even if the cash has not
flowed. By doing this profits will not be
distorted.
3.the Prudence
concept
Being careful with the way we account for transactions.
Looking on the bleak side of events. Taking losses
in full as soon as they are recognized. E.g. Bad
debts.
4.The Consistency
concept
Treat items in the accounts the same way year after
year. E.g. methods of depreciation or writing off
development expenditure.
5.The Entity
concept
Must keep business transactions separate from private transactions
and other business transations, if you own more than one business .
E.g. 3 business ,3 sets of books,3 bank account.
6.the Money Measurement
concept.
Accounts are denominated in money terms. this means they can be
compared more easily.
7.the Separete Valuation
principle.
All items must be valued individually. E.g. if you have 3 tones
of sand as raw materials, bought at different
time, different prices, then each tone should be valued separately
and not as a whole.
8.the Materiality
concept.
Takes into account the importance of individual transactions. Small
amounts may mot be investigated , because it takes more time and
effort than they are worth. E.g. items under £500 may not be
capitalized. Missing small items will not mis-state the
account.
9.the Historic Cost
convention.
We account for items at the price we paid for them.
10.the Stable Monetary
unit
Assume currencies have the same value all the time . in reality
currencies have change their value every day.
11.the Objectivity
concept
We try to ensure there is no bias, and that all figures are
accurate.
12.the realization
concept
We do not take account of profits until the transaction takes
place. (all losses are taken immediately-see prudence)
13.the Duality
concept
The double-entry bookkeeping system, debits and credits. Used
the world over, invented in
Italy in c.1450.
14.Substance over
form
Economic Substance over the legal form. E.g. this used to be
true of leasing. If we gain economic benefit we
must put them in our books.
15.the Time Interval
concept.
We prepare account over the same time period, usually one year.But
you chave management account for one month or one quarter(3
months).
16.The Balance
sheet.
ASSETS-what the business owns
LIABILITIES-what the business owes
CAPITAL-the wealth of the business invested by the owners.
The balance sheet equation
ASSETS-LIABILITIES = CAPITAL
The Income Statement
INCOME-EXPENSES = PROFIT/LOSS
Cashflow Statement
Measures all of the CASH flowing and out of the business.