Accounting principles/concepts Flashcards
(12 cards)
What are accounting principles/concepts?
These are basic rules that are applied in recording transactions and preparing the financial statements.
State the concepts
Business entity
Going concern
Money measurement
Historic cost
Duality
Consistency
Materiality
Accruals/matching concept
Prudent
Substance over form
What is the business entity concept?
In preparing the financial statement business entity concept states that the business has an existence separate from its owner. Therefore, the owners private transactions are different from the business’s transaction.
What is the going concern concept?
In preparing the financial statement the going concern concept assumes that the business will continue to operate forever unless proven otherwise.
What is the money measurement concept?
In preparing the financial statement the money measurement concept states that only transactions that can be expressed in monetary value are recorded in the ledger accounts
What is the historic cost concept?
In preparing the financial statement the historic cost concepts states that acquired assets and services should be written with its original cost. This only deals with transactions of monetary value
What is the duality concept?
In preparing the financial statement the duality concept states that there are 2 aspects for each transaction; debit and credit. The total amount of debits must always equal the total amount of credits in the accounting system.
What is the consistency concept?
In preparing the financial statement the consistency concept states that transactions should be recorded in the same way for present and future accounting periods.
What is the materiality concept?
In preparing the financial statement the materiality concept states that small, insignificant transactions or errors that do not impact the decision-making of users can be disregarded for decision making purposes.
What is the accruals/matching concept?
In preparing the financial statement the accruals/matching concept states that revenue gained and expenses inquired within the same period are to be equal.
What is the prudent concept?
In preparing the financial statement the prudent concept states that accountants should be cautious when making estimates, ensuring that liabilities and expenses are not understated, and assets and income are not overstated.
What is the substance over form concept?
In preparing the financial statement the substance over form concept states that the financial statements should reflect the underlying economic reality of a transaction, rather than simply its legal structure or form.
This means that the actual financial effects or economic substance of a transaction should be reflected in the financial statements, even if the legal documentation or arrangement may suggest something different.
