In Accounting Concepts and Conventions ppt, there are four main conventions in practice: conservatism, consistency, full disclosure, and materiality. Conservatism is the practice of recording the lower-value transaction when two values of a transaction are available.
Table of Contents
Accounting Concepts and Conventions ppt
Business entity concept
Accounting Concepts and Conventions ppt- According to the business entity concept, the transactions associated with a business must be recorded separately from those of its owners or other businesses. This necessitates the use of separate accounting records for the organisation that completely exclude any other entity’s or the owner’s assets and liabilities.
Without this concept, the records of multiple entities would be mixed together, making it difficult to distinguish the financial or taxable results of a single company. Here are a few examples of the concept of a business entity:
Money measurement concept
Accounting Concepts and Conventions ppt- According to the money measurement concept, a business should only record an accounting transaction if it can be expressed in monetary terms. This means that the emphasis of accounting transactions is on quantitative data rather than qualitative data. As a result, many items are never reflected in a company’s accounting records, and thus never appear in its financial statements.
The following are some examples of items that cannot be recorded as accounting transactions because they cannot be expressed in monetary terms:
Employee ability level
Working conditions for employees
A patent’s expected resale value
The worth of an in-house brand
Product longevity
Going concern concept
Accounting Concepts and Conventions ppt- The concept of a going concern is a fundamental principle of accounting. It assumes that a company will complete its current plans, use its existing assets, and continue to meet its financial obligations during and after the next fiscal period. Simply put, it is an assumption that the company will continue to exist and that the value of its assets will remain stable. This underlying principle is also known as the concept of continuing concern.
Accounting period concept
Accounting Concepts and Conventions ppt- A calendar year or fiscal year is an accounting period, which is a set period of time during which accounting functions are performed, aggregated, and analyzed. The accounting period is important in investing because potential shareholders evaluate a company’s performance using financial statements that are based on a fixed accounting period.
Accounting cost concept
Accounting Concepts and Conventions ppt- Accounting cost is the cost of an activity that has been recorded. Accounting costs are recorded in a company’s ledgers so that they can be included in its financial statements. If an accounting cost has not yet been consumed and is equal to or greater than a company’s capitalization limit, it is recorded on the balance sheet.
If an accounting cost is incurred, it is recorded in the income statement. If cash is spent in conjunction with an accounting cost, the cash outflow is recorded in the statement of cash flows. Because a dividend is a distribution of earnings to investors, it has no accounting cost.
Dual aspect concept
Accounting Concepts and Conventions ppt- According to double entry accounting, any business transaction is recorded in two separate accounts. The dual aspect concept states that each transaction made by a business has two distinct effects that are equal and opposite in nature. This concept underpins double-entry accounting and is used by all accounting frameworks to produce accurate and reliable financial statements.
Assets = Liabilities + Equity is the accounting equation used in this concept.
Matching concept
Accounting Concepts and Conventions ppt- The matching principle is an accounting principle that governs how revenues and expenses are recorded. It necessitates that a company keep track of its expenses as well as its revenues. For the best tracking, they should both fall within the same time frame. This principle acknowledges that businesses must incur expenses in order to generate revenues.
Realization concept
Accounting Concepts and Conventions ppt- The realization principle states that revenue can only be recognized after the underlying goods or services associated with the revenue have been delivered or rendered. As a result, revenue can be recognized only after it has been earned.
Accrual concept
Accounting Concepts and Conventions ppt- The general idea behind accrual accounting is that economic events are recognized by matching revenues to expenses (the matching principle) when the transaction occurs rather than when payment is made or received. This method combines current cash inflows and outflows with expected future cash inflows and outflows to provide a more accurate picture of a company’s current financial position.
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