Accounting Concepts

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  • Accounting Concepts
    • Business Entity
      • The final accounts report on the activities of the business and not the people running or owning the business
    • Materiality
      • Items with low monetary value that is not worthwhile recording separately e.g. small expenses, low cost non-current assets
    • Cost
      • Valuations in the balance sheet can not be disputed but as they become historic, they may need to be revaluated
    • Going Concern
      • This presumes that the business will continue to trade for the foreseeable future, without the need to go into liquidisation
    • Prudence
      • Taking a pessimistic view, when in any doubt, reporting a lower figure for profits and assets and a higher figure for liabilities
    • Accruals
      • Expenses or incomes that are not paid or received in the same financial period, but are in another
    • Consistency
      • When a business adopts an accounting policy, it should keep the same policy for more than one financial period, but it can be changed with good reason, e.g. valuation of inventory
    • Realisation
      • Business transactions are recorded in the final accounts when legal ownership changes and not necessarily when it is paid for
    • Objectivity
      • The accounts should not be influenced by opinions of the owner or the account


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