Accounting concepts, Accounting Basics

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Accounting concepts are used in relation to accounting procedures for a specific business enterprise.  Some of these are:

Going concern

Verifiable

Accounting period

Accounting entity

Comparable

Historical cost

Accounting equation

Monetary

Prudence

Timeliness

Materiality

Disclosure

For each statement below, select the most appropriate accounting concept or convention (from the list above) and write your answer in the box next to the description.  Please note the following:

  • Use a concept once only.
  • There are more concepts given than needed.

1     

All relevant information and explanations about a business have been included in its financial reports.

 

2     

This concept results from the need to report profit for a particular, arbitrary period of time.

 

3     

It is customary to consider the business enterprise as separate from the personal affairs of the owner so that profit can be determined.

 

4     

This requires understating rather than overstating income and expense amounts that have a degree of uncertainty, so that financial statements do not overstate the company's financial position.

 

5     

Transactions are recorded using the amount paid (or payable) at the time of the transaction.

 

6     

For an accounting record to be made it must be able to be expressed in dollar terms.

 

7     

The treatment of an item in the financial reports of a business depends on its relevance and importance.

 

8     

This concept implies that financial statements do not represent a company's worth if its assets were to be liquidated, but rather that the assets will be used in future operations.

 


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