Accounting concepts

Question 1

Money measurement

Answer 1

Only transactions and events that are capable of being measured in monetary terms are recognised in the financial statements.

Question 2

Duality

Answer 2

Every financial transaction has two effects, described as a “debit” and a “credit” which are recorded in two separate accounts

Question 3

Cost

Answer 3

Assets and liabilities are recorded at their historical cost rather than estimating what they are now worth. the only exception is when there is a valid reason for revaluing non-current assets

Question 4

Going concern

Answer 4

The business to which the financial statements relate will continue to operate in the foreseeable future

Question 5

Accruals

Answer 5

Costs and revenue are matched to the time period in which they arose

Question 6

Consistency

Answer 6

Businesses should always use the same accounting treatment for similar transactions. They should not change accounting policies unless there is a valid reason to do so.

Question 7

Prudence

Answer 7

Do not risk overstating revenue or assets or understating expenses or liabilities. If in doubt, include a figure that will cause profit or the value of assets to be lower rather than higher.

Question 8

Materiality

Answer 8

Some items are not worth recording separately because their low value means that they do not affect decisions taken by the users of the financial statements.

Question 9

Realisation

Answer 9

Revenue and purchases are recorded at the date when the goods or services are provided and not when payment is made for them.

Question 10

Business entity

Answer 10

The financial statements must only include transactions relating to a specific business and not the people who own or run it.