CONCEPTS AND PRINCIPLES UNDERLYING ACCOUNTING Flashcards
what are the 6 accounting concepts and princples?
monetary principle accounting entity concept accounting period concept going concern principle cost principle full disclosure principle
what is monetary principle?
only those things that can be expressed in terms of money should be included in the accounting records
accounting entity concept?
every entity can be separately identified and accounted for
- personal transaction separate from transaction of entity - should be recorded as drawing of capital dr drawing cr cash correcting one would be dr drawing cr asset (whatever purchased)
accounting period concept?
economic life of entity can be divided into artificial time period and that useful reporting covering those periods can be prepared for entity
going concern principle?
entity will continue to operate in foreseeable future and thus need to prepare financial statement on ongoing basis.
cost principle?
assets should be recorded at cost or purchase price.
if NRV is lower than cost, then report as NRV.
full disclosure principle?
circumstances and events that could make material difference to decisions made by users of financial reports should be disclosed
violation of revenue recognition
merchandising org revenue recognised when goods delivered
service org revenue recognised when service provided.
violation of expense recognition?
Expenses are defined in the Framework as decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
