Accounting: Accounting Principles Flashcards
What are accounting concepts?
‘Broad basic assumptions which underline the periodic financial accounts of business enterprises’
State the acronym to remember the 11 accounting concepts
DS GAME - MTMCS
State the 11 accounting concepts using the acronym?
- Duality concept
- Substance over form
- Going concern
- Accruals concept
- Matching concept
- Entity concept
- Materiality concept
- Time period concept
- Money management concept
- Consistency concept
- Separate determination concept
What is the Duality concept?
The idea that every transaction affects two accounts in a financial statement , as to keep the accounting equation in balance
What is another name for duality concept?
aka Double entry
Define substance over form concept?
Accounting principle which states that business transactions should be accounted in accordance with their economic substance instead of their legal form
Define Going concern?
Assumption that the business will continue operating into the foreseeable future
What does this mean for the Business in terms of their financial statements?
The implication is that assets will be valued and shown at their historical value or fair value in the statements of financial position.
What if the entity will not come continue in business ?
Then asses should be valued on a cessation basis , that is at their net realisable value.
What is the Accrual concept?
Recording revenue when they are earned, not when they are received in cash , and recording expenses when they are incurred, not when they are paid.
Define Matching concept?
Cost should be set against the revenue which they generate at the point in time when they arise
What the difference between the accrual concept and the matching concept
Matching concept requires recognition of revenues and expenses regardless of the actual payment of expenses
