Accounting Concepts Flashcards
Money Measurement definition
Information recorded in accounts must be recorded in money terms. It is therefore notpossible to record for eg. the loyalty of a firm’s workforce.
Duality definition
Every financial transaction has a dual aspect i.e. a debit and credit entry of equal value.
Objectivity definition
Wherever possible accounting information should be factual (i.e. objective), rather than someone’s opinion (i.e. subjective)
Cost definition
Assets and liabilities should be valued at cost
Going concern definition
Those preparing the financial statements are to assume that the business will continue to trade for the foreseeable future (at least one year).
Consistency definition
The same accounting policies and procedures should be applied from one accounting period to the next.
Realisation definition
Revenue should be recorded when it is certain it will be received. In other words, a sale should only be recorded if cash has been paid or an invoice has been issued. E.g. you can’t record a sale of the back of someone promising that they will come back and buy a product after their next pay day!
Accruals definition
Revenue and expenditure should be matched to the time period in which it was earnt or incurred, not when the cash is received or paid.
Prudence definition
Asset values and profits should be understated rather than overstated
Materiality definition
If the amount involved is relatively insignificant, than the usual accounting treatment can be set aside
Business entity definition
