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the concepts of accounting
Transcript of the concepts of accounting
MONEY MEASUREMENT CONCEPT
This concept states that only those transactions that can be expressed in monetary terms are to be recorded in the books of accounts.
Non - monetary transactions fall outside the scope of accounts.
For Example :
ACCOUNTING PRINCIPLES :-
"Generally Accepted Accounting Principles (GAAP)".
Standard or the general rules to be followed while maintaining books of accounts.
Standardising the recording and reporting of financial information.
These are classified as :
Going Concern Concept :-
This concept states that the books of accounts are to be maintained under the assumption that the business will last for ever.
It helps in recording of transactions and decision making.
. Fixed assets should be recorded in the book of account at their original purchase price.
. BOOK VALUE = COST - DEPRECIATION
* ACCRUAL CONCEPT
* REALIZATION CONCEPT
Business Entity Concept:-
. This concept states that business and business man are different.
. All the transaction should are to be recorded from the business point of view not the proprietor.
. The personal transactions of the owner should not be mixed with the business transactions.
For Example :-
Dual Aspect Concept :
Every transaction has two aspects - A Receiving and A Giving aspect.Both the aspects of each and every transaction must be recorded in the books of accounts.
Accounting Period Concept :
Financial statements of an enterprise are prepared.
Earned profits or incurred losses during that period
Position of its assets and liabilities at the end of that period.
Life of business is to be divided into equal period of 12 months each known as "Accounting Year".
At the time of retirement of partner the accounting period can be different from 12 months period.
ACCOUNTING EQUATIONS :
CAPITAL = ASSETS
CAPITAL + LIABILITIES = ASSETS
CAPITAL = ASSETS - LIABILITIES
1. An oil and gas firm operating in Nigeria is stopped by a Nigerian court from carrying out operations in Nigeria. The firm is not a going concern in Nigeria, because it has to shut down.
2. A nationalized refinery is in cash flows problems but the government of the country provided a guarantee to the refinery to help it out with all payments, the refinery is a going concern despite poor financial position.