Analysis of financial statements is done using financial ratios. Although the accruals concept is universally accepted in trading and manufacturing organizations, there are occasions when the concept of conservatism overrides the application of the accruals concept.
They must be matched with one another so far as their relationship can be established or justifiably assumed, and dealt with in the profit and loss account of the period to which they relate. When these accounting principles and concepts are used in accordance with the rules and regulations of International Financial Reporting Standards IFRSthe financial statements produced are objective and give a true and fair view of the organization.
An exception to this rule would be a long term contract that involve payments on account before completion Business game with accounting concept essay the work.
A business may have intangible assets such as the flair of a good manager or the loyalty of its workforce. Realisation occurs when a sale is made to a customer. There is a problem in this area. After all, the value of an asset as far as I am concerned may be different to the value of the same asset as far as you may be concerned.
Accounting Concepts and Conventions Essay Sample Going concern This concept is the underlying assumption that any accountant makes when he prepares a set of accounts.
Consistency Because the methods employed in treating certain items within the accounting records may be varied from time to time, the concept of consistency has come to be applied more and more rigidly. For example, with fixed assets: The company should make a provision for doubtful debts of?
In other words, there may be a direct clash between the accruals and conservatism principles. These may be important enough to give it a clear superiority over an otherwise identical business, but because they cannot be evaluated in monetary terms they do not appear anywhere in the accounts.
Of these, the company is now doubtful whether? The concept applies whether the business is a limited company and so recognized in law as a separate entity or a sole proprietorship or partnership in which case the business is not separately recognized by the law.
The asset should be included in the balance sheet even though it does not belong to the company legally. Some organization may do it at the end of every month whereas others do it at the end of the year to determine profit or loss that might have been experienced during that period.
The sale is deemed to be made when the goods are delivered, and thus profit cannot be taken to the profit and loss account on orders received and not yet filled. It was to combat subjectivity that accounting standards were developed.
So, the affairs of the individuals behind a business must be kept separate from the affairs of the business itself. However, how long will this van be in service?
In accounting, it states that when choosing between two solutions, the one that will be least likely to overstate assets and income should be selected. The activities of an organization can be determined and at times it depends on frequency at which the accounting activities are done.
For example, capital items such as buildings, vehicles, machinery etc, which are capitalized in accordance with Generally Accepted Accounting Principles GAAPsmust always be capitalized and no deviation should be recommended on the grounds of conservatism. Costs concerning a future period must be carried forward as a prepayment for that period and not charged in the current profit statement.
Clashing accounting concepts and conventions that might bring about inconsistency in the accounting process9 1. That the business under consideration will remain in existence for the foreseeable future. In these accounts, recognition is generally given to the accruals concept insofar as it relates to expenses.
If a business purchases stock for? The problem, of course, is in deciding what is and what is not material: The concepts and conventions also apply to the millions of businesses world wide that do not publish their accounts.Importance of Accounting Concepts Introduction.
The most important aspect of any business venture is a simple understanding of the prevailing concepts that could curtail the smooth operations of the business as a going concern. For example, in the balance sheet of a business, monetary values can be attributed to such assets as machinery (e.
g. the original cost of the machinery; or the amount it would cost to replace the machinery) and stocks of goods (e. g. the original cost of goods, or, theoretically, the price at which the goods are likely to be sold). Accounting: Generally Accepted Accounting Principles and Money Measurement Concept Essay example.
Accrual Basis of Accounting Concept Going Concern Concept Consistency of Presentation Materiality and Aggregation Offsetting Conservatism Principle Prudence Entity Concept Money Measurement Concept Matching Principle Duality Conclusions Reference Introduction: Accounting. In case where application of one accounting concept or principle leads to a conflict with another accounting concept or principle, accountants must consider what is best for the users of the financial information.
Question 1 Explain using various examples,how the major accounting concepts are used in preparing financial statements. Accounting is the language of business and it is used to communicate finance information.
In this essay, I will point out the several strategies that conflict with the directors and resulted in the massive difference between business plan and practical section.
Also, It will show the different learning style and some relevant concept to Organizational Behaviors between the directors in this essay/5(7).Download