13 Accounting Concepts :explode: - Coggle Diagram
13 Accounting Concepts :explode:
Business Entity Concept
1) Separates the business from its owner.
2) Personal money is personal money. It is not related to the business.
Going Concern Concept
1) Assumes a business will continue until forseeable future.
2) Allows costs and revenues to be allocated.
1) Normally accountant will take the figure which will understate rather than overstate profit.
1) The same method should be followed over the years.
2) Change in methods would lead to inconsistency in profits.
1) Recognizes revenue as the goods delivered to the customer.
2) Recognized expenses as they happen in generation of revenues.
3) 5/1/2021 Ali buy vehicle on credit and pay on 1/6/2021. The accountant should record the date of transaction which is 5/1/2021
1) The revenue and the expenses incurred to earn the revenues must belong to the same accounting period.
2) Eg - If a company adopts straight line method and should not changed to adopt reducing balance method in other period.
Money Measurement Concept
1) Accounting records only those transactions which can be expressed in monetary terms.
Accounting Period Concept
1) In general, the time period reflected by a set of financial statements.
2) In term of taxation, it is the 12 month period a taxpayer uses to determine his or her income tax.
1) Relevant to business operation and decisions can be grouped on the basis of their nature and purpose
Dual Aspect Concept
1) Based on double entry system of book keeping which mean that a record of each transaction is made in two separate account.
1) Revenues are realized + Revenues are earned = Revenue recognition principle
Full Disclosure Concept
1) Providing information that is sufficient importance to influence the judgment and decisions of an informed user.
1) A company purchases a Trashcan for $10. Per GAAP, this amount should be capitalized as an asset and depreciated.
2) This is because the amount is immaterial, the $10 can be recorded as expense