POA concepts to memorise

Question 1

1st:

What is Accounity entity concept?

Answer 1

1. The owner and the business are treated as sepreate entities.
2. When the owner withdraws good belonging to the business for their own personal use it is called Drawings.
3. When, the owner contributes their own assets to the business it is called Capital.
4. All transcations must be from the pov of the business

Topic: drawings and capital account

Question 2

What is Accural Basis of Accounting?

Topic: Income and Expense

Answer 2

revenue and other income are recognised in the period they are erarned and expenses are recognised in the period they are incurred, regardless of whether cash is recieved or paid.

Question 3

What is the consistency concept?

Topic: Depreciation

Answer 3

The accounting methods used by the businesss should be consistent from peiod to period so that its finacial perfromance can be meaningfully compared across financil periods.

Question 4

Going concern theory

Topic: Depreciation

Answer 4

1. The business contunies indefinitely unless circumstances show otherwise.
2. Hence non-Current Assets need to be depreciated during its useful liife which extends beyond one accounting year

Question 5

Historical concept theory

Topic: All Topics

Answer 5

Transactions should be recorded at their original cost which is the amount reflected in their source document

Question 6

Matching concepts

Topic: Income and expenses

Answer 6

All income earend during an anncounting period must be matched with the expenses incurred during the same accounting period to find the profit or loss for that period

Question 7

Matching concept

Topic: Trade receivables: Impariment loss on TR

Answer 7

Business must record impairment loss on trade reciveavbles as an expense item in the SOF performance.

Question 8

Materaility Concept

Topic: Capital vs Revenue expenditure (NCA topic)

Answer 8

A transaction or an item is considered material if it makes a diffrence to decision-making.

The Value of the transaction is compared to the size of the income, profit, assets or equity of the business.

If the amt spent on the NCA is insignificant to the decision making then it does not need to be reported as a NCA but classided as a revenue expenditure

Revenue expenditure is expenses that is recorded in SOF perfromance

Do not need to say the full answer because it really is vice-versa.

Question 9

Monetary Concept

All topics

Answer 9

Only transactions which can be measured in money terms can be recorded

Question 10

Objectvity concept

Source Documents

Answer 10

Source deocuments provide reliable and verifiable evidence that a transaction has taken place

Question 11

Prudence Concept

Inventory

Answer 11

When the NRV of inventory is less than its cost price
then business must recognise possible future loss in the cureent year.
And reduce the value of inventory so that profits for the year and its inventory assets are not overstated.

Impairment loss on Inventory

NRV= The selling price - the additional cost to sell the inevtory

Question 12

Revenue recognition theory

Financial statements

Answer 12

1. Sale revenue is recognised when goods are delievred to the customer
2. Service Fee Revenue is recognised when service is provided to the customer. Income is also reocgnised when services is provided to the customer.

Question 13

Accouniting period

Answer 13

The life of a business is dvided into regular time intervals