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Flashcards in Concepts and Principles Deck (17):

Explain the COST concept

Implies that fixed assets and stock should always be shown at COST PRICE. Serves as a basis for all asset calculations


Explain the GOING CONCERN (Assumed Continuety) concept

- Implies that business will CONTINUE to operate for the foreseeable future
- ASSET values in the balance sheet will assume to continue, shown at original cost
- When a business is SOLD, there is no going concern and asset values will change to selling values.


Explain the BUSINESS ENTITY concept

- SEPERATES the business entity from the owner. Business financial transactions recorded in business
- The owner's interest is confined to the capital and its adjustments
- Capital
- Profitability


Explain the REALISATION (Recognition) concept

- Important NOT TO SHOW a profit until it has been earned
- Revenue is only received when the legal title of the goods passes from the seller to the buyer, buyer has obligation to pay
- Profit as being earned at a particular point
- Profit is not calculated on the basis of when cash is received or spent


Explain the DUAL ASPECT concept

Assets and its claims against it. The double entry system where there is a DEBIT for every CREDIT


Explain the ACCRUAL (Matching) concept

The income of one period is MATCHED to the cost of the same period and the timing of the cash receipts and payments is ignored. (Accrued and prepaid expenses)


Explain the TIME INTERVAL concept

Final accounts must be prepared at REGULAR intervals. For internal management purposes they are be prepared more frequently


Explain the MATERIALITY concept

Accounting is not serving a useful purpose if the recording of a transaction in a certain way is not worthwile


Explain the PRUDENCE (Conservatism) concept

- PROFITS are not overstated and foreseeable LOSSES are allowed when preparing accounting statements
- FIXED ASSETS are not overstated in the balance sheet
- STOCK must be valued at lower of the cost or net realisable value


Explain the CONSITENCY concept

Keeping to the SAME method of recording transactions, except in special cases


Explain the MONEY MEASUREMENT concept

- Only information which can be recorded in terms of MONEY is recorded in accounting statements


Name the FACTORS influencing the business' performance but which can not be measured in monetary terms (MONEY MEASUREMENT CONCEPT)

- Good or bad MANAGERS
- Serious problems in the WORKFORCE
- Changing of government LAWS


Explain the SUBSTANCE OVER FORM concept

- Real substance takes precedence over legal form


What is objectivity?

Using a standard method which is generally accepted by the business world


What is subjectivity

Using your own method which is not generally accepted


What are SSAPSs?

Statements of Standard Accounting Practice


What are FRs?

Financial Reporting standards