Accounting Concepts

Question 1

Business entity

Answer 1

The financial statements refer to a particular business and not the people who own or run it.

Question 2

Money measurement

Answer 2

The accounting system uses monetary values when recording and reporting business transactions.

Question 3

Duality

Answer 3

Every financial transaction has two effects, which are described as ‘Debit’ and ‘Credit’

Question 4

Materiality

Answer 4

Some items have such a low value that it is not worth recording them separately.

Question 5

Cost

Answer 5

Assets and liabilities are recorded at their historical cost rather than estimating what they are now worth.

Question 6

Going concern

Answer 6

The business to which the financial statements relate will continue to trade in the foreseeable future.

Question 7

Consistency

Answer 7

When a business chooses particular accounting policies, it should always use them until there is a good reason to change them.

Question 8

Realisation

Answer 8

Sales and purchases are recorded when ownership of the goods changes or services are provided rather than when payment is made.

Question 9

Prudence

Answer 9

Financial statements should, when in doubt, include a figure that will cause profit or the value of assets to be lower rather than higher.