Concept Of Accounting Concepts

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Introduction The basic presumption, rules and fundamental of accounting concept are work as the basis of recording all the business transaction and also preparing accounts. The following accounting concept are business entity, going concern, accounting period, money measurement, historical cost, matching, prudence, consistency, objectivity, accrual, dual aspect concept, materiality, substance over form and realisation. These concepts comprise the basic accounting concept.http://cms.sinhgad.edu/SIM_Web_Assets/Samplenotesofaccounting-SIBAR.pdf Accounting concepts Firstly, business entity. The owner and the business are separate even though the owner is the people who bring money or capital into the business. Furthermore, money measurement.Its…show more content…
Matching concept is at the heart of accrual basis of accounting. Big Apple Doughnut has sold different types of doughnuts for 30 years in a small town. It purchases a large amount of flour for RM3,000 to bake doughnuts and resells it to a local restaurant for RM10,000. At the end of the period, Big Apple Doughnut should match the RM3,000 cost with the RM10,000 revenue. Moreover, Majority of the company who make sales are against credit term. Example, when the customer receives delivery of goods or services but promises to make the payment within 30 days. In accordance with accrual concept, revenue is recognized when the delivery is made. Now, risk that the customers may not pay the amount due against those sales, which results in the company writing off the account receivable as bad debts expense. The possibility of bad debts exists when the sale is made, so expense should be recognized right at that moment when the sale is made. Recognizing bad debts expense requires considerable…show more content…
Firstly, business entity. Its advantage only for financial statements users only. It can distinguish between the actual company activity and ownership involvement. Its disadvantage only can records of multiple entities would be intermingled, making quite difficult to discern the financial or taxable results of a single business. Besides, monetary measurement. It making easier to aggregate and summarise transactions, and comparing the financial statements.On the other hands It is limiting the usefulness of information in the financial statements because non-financial items are ignored (eg loyalty of workforce ). Then, historical cost. Historical cost is well-known and can be checked to an invoice. It can also increase comparability, there are non-volatile value and straightforward to produce, don’t record till they are realized. When non-current asset values become quickly out of the date. Lower cost become to higher profits in which may lead too high dividends in real terms and users are not interested in current
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