accounting concepts Flashcards
what is duality concept
Accountants see total assets as equal to total equities
Any transactions will have at least two effects on the accounting equation
what is monetary unit concept
accountants are only interested with things that can be expressed in money terms
e.g balance sheets only list items that have a money value
what is accounting entity
accountants see the business as seperate to the owner for recording and reporting purposes
Any dealings between the owner and the business is recorded seperately
what is legal entity
The law only sees a business as seperate from its owners if its a company
Sole traders and partnerships have unlimited liability for debts of the business
What is accounting period
accountants split the life of the business into shorter periods for recording and reporting purposes
businesses often report over the financial year (1 july to 30 june)
what is realisation
accountants recognise revenue when goods or services are provided
It’s not when cash is received
what is going concern
accountants assume that a business will continue operating in the future
What is faithful representation
accountants should present information that is complete, neutral, and free from error
what is consistency
accountants should consistently apply the same accounting procedures in each period, or make it clear if not
e.g depreciation methods should stay the same
what is materiality
accountants record and report separately only those matters that are important for its users
such as grouping all furniture together in balance sheet
what is historical cost
accountants value assets at the price paid to get them
e.g if a car was bought for $30,000, it will continue to be recorded at $30,000 until its gone
What is prudence
accountants should not over-exaggerate their profits when dealing with uncertainties
e.g using doubtful debts, and accumulated depreciation to make more accurate representation of profit
what is accrual accounting
accountants measure profit on the basis of revenue earned and expenses during the period
They record it when occurred not when cash is paid
what is relevance
accountants should disclose all relevant information to users
