The accounting concepts and accounting standards are generally referred to as the essence of financial accounting. Comment.

Answer: The process of financial accounting starts from the process of recording a transaction and is then followed by the steps such as e classifying, measuring, summarising, preparing final accounts etc. The main objective of the financial accounting is to provide the information to its various users. The data so circulated must possess the qualities such as reliability, comparability, understanding and relevance. Hence in order to ensure that the quality of the accounting practices, set of principles and guidelines are necessary to be met with in order to ensure the uniform practice of recording the transactions.



Thus the various concepts of accounting such as Matching Concept, Conservatism Concept and Dual Aspect Concept must be ensured in practice.

 

Question: Complete the following work sheet:

(1) If a firm believes that some of its debtors may ‘default’, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the___________ concept.

(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the __________ concept.

(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the _________ concept.

(iv) The ___________ concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.

(v) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of the _____________

(vi) If a firm receives an order for goods, it would not be included in the sales figure owing to the ____________

(vii) The management of a firm is remarkably incompetent, but the firms accountants cannot take this into account while preparing book of accounts because of ____________concept.

Answer: (i) If a firm believes that some of its debtors may ′default′, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the conservatism concept.

(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the business entity concept.

(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the dual aspect concept.

(iv) The consistency concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.

(v) A firm may hold stock which is heavily in demand. Consequently, the market value of the stock may be increased. Normal accounting procedure is to ignore this because of the conservatism concept.

(vi) If a firm receives an order for goods, it would not be included in the sales figure owning to the realization concept .

(vii) The management of a firm is remarkably incompetent, but the firms accountants cannot take this into account while preparing the books of accounts because of money measurement concept.

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