Accounting Concepts

Question 1

Business entity ?

Answer 1

Transactions relate to the business and not the owner

Question 2

Realisation

Answer 2

Revenue and profits only recognised when cash receipt is reasonably certain

Question 3

Materiality

Answer 3

Where decisions are required about the appropriateness of a particulate accounting judgement, this should only be an issue if the judgement is significant or material to a user of the accounts

Question 4

Money measurement

Answer 4

Only account for items that can be measured in monetary terms

Question 5

Going concern

Answer 5

Assumes the business will continue in operation for the foreseeable future

Question 6

Matching/accruals

Answer 6

Income and associated costs are matched in a given accounting period. Income is recognised when it is earned and expenses when the are incurred not necessarily when they are paid

Question 7

Consistency

Answer 7

Accounting treatments applied consistently from period to period to enable comparisons to be made

Question 8

Prudence

Answer 8

Do not overestimate the amount of revenues recognised or underestimate the amount of expenses