Accounting Concepts Flashcards
What are accounting concepts?
A process of control on expenditure
What are the two categories of accounting?
Financial accounting and managerial accounting
What is financial accounting?
Concentrates on the assets, profits and levels of cash in a business. Main purpose to satisfy the external stakeholders (will be issues in annual report)
What is managerial accounting?
Concentrates internal financial accounts, allowing the business to monitor and evaluate its performance. Allows them to set targets and achieve objectives
What are accounting concepts?
- seven principles in which accounts are constructed in line with.
- known as The Principles of Accounting.
- ensure figures are standardised so can be analysed and reviewed by stakeholders with a degree of confidence.
What are the seven accounting concepts?
Consistency
Going concern
Matching
Materiality
Objectivity
Prudence
Realisation
What is consistency?
- all accounts produced in same way
what is going concern?
- assumes business is operating as normal
What is matching?
- dates used to record financial transactions are from when the transaction takes place, not when payment is made.
What is materiality?
- while calculating the value of a business it must be realistic (not counting every single asset)
What is objectivity?
Basis that account are realistic and based on facts not opinions and guesses
What is prudence?
Not overstating financial situation (similar to objectivity)
What is realisation?
Similar to matching - realisation (when becomes property of buyer) takes place when legal ownership changes hand not when payment is made
What does GAAP stand for?
Generally Accepted Accountancy Practice
What is the GAAP?
The framework for accounting principles/ rules
