Please enable JavaScript.
Coggle requires JavaScript to display documents.
BASIC ACCOUNTING CONCEPTS (ACCRUAL (• Accrual must be recorded in the…
BASIC ACCOUNTING CONCEPTS
ACCRUAL
• Accrual must be recorded in the accounting period in which they are incurred irrespective of whether they have been paid or not.
• A transaction is consider to be material if it significantly affects the reported net income of the business.
• It is relative to the size and specific circumstance of the business
MATERIALITY
• A transaction is considered to be material if it significantly affects the reported net income of the business.
• It is relative to the size and specific circumstance of the business
CONSISTENCY
• This concept deals with the consistent use of accounting bases or methods.
• For example - once a business has adopted the straight line method of calculating depreciation, this method should be used both within one accounting period and from one accounting period to another
GOING CONCERN
• This concept assumes that a business is a going concern
that will continue to operate in the foreseeable future.
• Using its assets to carry on its operation and with the exception of merchandise not offering the assets for sale.
•The concept assumes that the business enterprise will have a long life and that it will last long enough to fulfill its objectives and commitments.
MONETARY / MONEY MEASUREMENT
• It is assumed that the purchasing power of the unit of measurement used in accounting, does not change.
• The assumption is because
money is the common denominator
the monetary units provides an appropriate basis for accounting measurement and analysis
the monetary units is the most effective means of expressing to interested parties changes in capital and exchanges of goods and service
ECONOMIC ENTITY
• This concept assumes that a business is separate and distinct from its owner and from every other owner.
• The items recorded in the business books are limited to transactions affecting the business only.
• The records and reports of a business should not include either the transactions or assets of another business or the personal assets and transactions of owner and owners.
COMPARABILITY
• Users must be able to compare an entity financial statements (a) through different time to identify trends.
• And (b) with another entity statement evaluate their relative financial positions, performance and changes in financial position.
COST
•This concept requires that assets and services plus any resulting liabilities be taken into the accounting records at costs
• Cost is used as
it is definite and determinable
accountants can provide objective and verifiable data in theirs reports
cots are measured on a cash or cash equivalent basis
PERIODICITY
• The assumption is that the economic activities of a business can be divided into regular time periods, namely monthly, quarterly or yearly.
•For reporting purposes, financial statements normally prepared on a yearly basis.
• For management purpose, they will be more frequently prepared such on a quarterly or monthly basis.
NEUTRALITY
• Information must be free from bias to be reliable.
• Neutrality will be lost if the financial statement are prepared to influence the user to make a judgement or decision in order to achieve a predetermined outcome.