Accounting Conventions

Question 1

what are the 7 accounting conventiosn

Answer 1

Business entity
Going Concern 
Money measurement
Accounting period
Historic Cost  
Dual Aspect 
Realisation

Question 2

what is the business entity concept

Answer 2

owner and business are completely separate, only business transactions are recorded in the financial statement

Question 3

why is the business entity conceot neede

Answer 3

measure the performance of the company separately from the owner

reduce difficulty

ensures business if taxed separately (different tax rates)

simplification of accounts

Question 4

what is the going concern concept

Answer 4

assumption that the business entity will continue to operate indefinitely into the future

Question 5

why is the going concern concept needed

Answer 5

it it is not a going concern, financial statements are drawn up on a completely different basis

Question 6

what is the money measurement concept

Answer 6

only record what can be recorded in terms of cash

Question 7

what is an example of an asset that can not be measured and recorded as cash

Answer 7

employees

Question 8

examples of accounting periods

Answer 8

annually
semi annually
quarterly
monthly

Question 9

what is the historical cost concept

Answer 9

assets must be recorded at the price at cost

Question 10

what is the dual aspect concept

Answer 10

there are 2 sides of every transaction

Question 11

what is the realisation concept

Answer 11

record transactions when they are appropriately recognised

ie you cannot anticipate you are going to received a profit and record this in the accounts, ensure the sale has actually happened

Question 12

what is the matching concept

Answer 12

any revenue earned and expenditure incurred in the period must go into SOPL regardless of whether cash is paid or recieved

Question 13

what is the matching concept also known as

Answer 13

accruals concept

Question 14

what is the materiality concept

Answer 14

if an item, event or transaction is important, significant and material, it must be recorded

this will make sure we don’t wrongly influence a user’s decision

Question 15

what is prudence concept

Answer 15

exercise caution when making judgments under conditions of uncertainty

Question 16

what is the consistency concept

Answer 16

the following must be consistent across accounts periods:
accounting methods
accounting principles
accounting standards
accounting practices