Accounting concepts

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  • Created by: apple87
  • Created on: 07-04-15 08:24
What is the purpose of accounting conceots?
The are fundamental rules that are followed by all accountants, they ensure everyone treats situations in a similar way, provide guidelines for the treatment of unfamilier accounting problems.
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What is objectivity?
Accounting information should be factual (objective) rather than opinion(subjective).
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What is objectivity the heart of?
Rules about valuing assets.
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When can opinins not be avoided?
Deciding depreciation charges, estimated residual value, estimated economic life, method of depreciation.
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What is cost?
Assests should be valued at cost not opinion.
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What is going concern?
When those preparing the financial statements assume the business is going to continue trading for the foreseeable future. The possible sales of an asset can be ignored.
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What is accurals?
Shows how profits should be calculated, expenses and revenue are matched for a time period.
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How is the accruals concept applied to closing inventory?
It is important to deduct closing inventory from cost of sales, although it will already have been paid for it is really a cost when it is sold.
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How is the accruals concept applied to depreciation?
It is important to include an estimate of contribution for the non-current asset even though the asset could have been paid for several years earlier.
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How is accruals concept applied to expense adjustments?
Expenses in a trading period is often out of step with the amount actually paid so it is importants to take into account amounts due.
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What is the consistency concept?
When the same accounting procedures and policies from one financial year to the next, this helps make comparisions between accounts.
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What is the prudence concept?
Where there is doubt assets should be understated rather than overstated, stops stakeholders thinking the business is doing better than it is.
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What is the materiality concept?
Concerns the treatment of certain items. trivial items aren't included in the accounts.
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What is the realisation concpet?
At the heart of realisation is the idea that revenue shouldn't be recognised until it it is the cash had been paid or invoice issued.
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What is business entity?
Transactions recorded in the businesses accounts can be related to the owners private affairs.
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Other cards in this set

Card 2

Front

What is objectivity?

Back

Accounting information should be factual (objective) rather than opinion(subjective).

Card 3

Front

What is objectivity the heart of?

Back

Preview of the front of card 3

Card 4

Front

When can opinins not be avoided?

Back

Preview of the front of card 4

Card 5

Front

What is cost?

Back

Preview of the front of card 5
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