Concepts Flashcards
Explain the historical cost principle
Transactions and assets should be recorded at their actual original cost
Explain the money measurement principle
Only transactions with monetary value should be recorded in the books of the business
Explain the business entity principle
The business and owner are separate. The transactions of the business and the owner are kept separate with two different sets of books
Explain the dual aspect principle
Every debit entry should have a corresponding credit entry and visa versa
Explain the realization principle
The profits should be shown only if they have been entered
Revenue is realized when the legal title of goods passes from the seller to the buyer
Explain the going concern principle
The business is open and should continue to operate in the future
Explain the consistency principle
Accounting information should always be recorded using the same method
Explain the prudence principle
When there is more than one way of recording a transaction the business should record it in the most conservative way financially
Profits shouldn’t be overstated and non-current assets shouldn’t be overvalued
Explain the accrual/matching principle
The income earned in a specific financial period and the cost incurred for generating that income in the same financial period must match
Transactions should be recorded when they occur and not when the payment is made/received
Profit is the difference between the revenue and expenses incurred in the same financial year
Explain the substance over form principle
Where the legal form and real substances of transactions differ, accounting should should show transactions according to the real substance
Explain the materiality principle
Something should be included in the financial statements only if it affects the stakeholders
