Accounting Concepts

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Going Concern
The accounts are prepared on the basis that the business is expected to continue trading in its present form for the forseeable future (at least the next 12 months). Therefore if a business is considered to be a going concern, all assets are valued
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Accruals
Sales should be recorded in the Trading, Profit and Loss Account in the accounting period in which they are earned (i.e the goods have been sent to the customer), even though the money may not have been received in that period. Costs should be recor
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Prudence
Accountants should take a cautious approach to the valuation of assets and the calculation of profit. It is better to understate rather than overstate these amounts. A loss in value should be recorded in the Trading, Profit and Loss Account as soon
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Realisation
An extension of the cautious approach. Profits should not be anticipated. Therefore sales revenue should not be recognised in the Trading, Profit & Loss Account until exchange of goods or services has taken place
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Consistency
The accounts should be prepared on the same basis every year i.e similar items should be treated the same way as each other both within each accounting period and from one period to the next. For example, if a business has several vehicles that it o
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Historical Cost
Accounts should be prepared using the original costs incurred in a transaction because this can be verified by evidence such as an invoice. This makes the value used more objective. The problem with choosing other ways of valuing transactions is th
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Separate Entity (or Business Entity)
The financial affairs of the business should be recorded separately from the owner's financial affairs. The only link between them is the recording of the capital owed to the owner and the reduction of that capital via drawings. Personal expenses ca
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Materiality
The way in which accounts are prepared may depend upon the significance of the transaction being recorded or the adjustment being made. For example, although a door mat costing £5 may have long term use in the business, it would not be treated as a
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Money Measurement
The value of transactions, assets, liabilities or capital should only be recorded where they can be measured in monetary terms at a value that can be objectively reached (i.e most people would agree with it because, for example, there is an invoice s
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Dual Aspect
This concept states that every transaction has two effects on a business' accounts. It is therefore the reason why the double entry system of bookkeeping is used in preparing accounts. It allows the preparation of the Trial Balance to check the acc
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Other cards in this set

Card 2

Front

Sales should be recorded in the Trading, Profit and Loss Account in the accounting period in which they are earned (i.e the goods have been sent to the customer), even though the money may not have been received in that period. Costs should be recor

Back

Accruals

Card 3

Front

Accountants should take a cautious approach to the valuation of assets and the calculation of profit. It is better to understate rather than overstate these amounts. A loss in value should be recorded in the Trading, Profit and Loss Account as soon

Back

Preview of the back of card 3

Card 4

Front

An extension of the cautious approach. Profits should not be anticipated. Therefore sales revenue should not be recognised in the Trading, Profit & Loss Account until exchange of goods or services has taken place

Back

Preview of the back of card 4

Card 5

Front

The accounts should be prepared on the same basis every year i.e similar items should be treated the same way as each other both within each accounting period and from one period to the next. For example, if a business has several vehicles that it o

Back

Preview of the back of card 5
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