Financial Accounting, SS 1, Week 2
Topic: Accounting concept and convention
Content
- Meaning of Accounting concept
- Major Accounting concept and convention
Meaning of Accounting concept
Accounting concept and conventions are different bodies of principle which have been developed over the years to regulate the practice of accounting profession.So the preparation of financial are guided by content and objective principle.these rules and regulation helps the accountant to perform their roles of providing relevant information to people,they have been accepted and issue form of accounting standards
Major accounting concept and conventions
- Entity concept
- Going concern concept
- Periodicity
- Prudence
- Objectivity
- Materiality concept
- Consistency concept
- Realization concept
- Dual concept
- Match concept
- Entity concept: entity concept states that business organization should be treated as a separate entity from its owner.that is,if the money in the business is to be paid to the owner it should not be regard as expenses to the business but as drawings for the owners
- Going concern concept:this concept assumes that the business will continue to operate for an indefinite long period of time.
- Dual concept:ensure the mathematical accuracy of all records.it state that there are the aspect of accounting one debit and one credit.hence the double entry rule is applicable debit the receive and credit the giver.
- Periodicity concept:it is an acceptable norm within the business community and users of financial statements that financial performance of companies should be divided into accounting periods usually one year and that changes should be measured over these periods.
- Prudence: this principle states that the accountant should not anticipate income and will normally take the figure that understate rather than overstate the profit.
- Objectivity: this concept means that an objective picture of the company should be provided so that accounting statement are not influence by the personal bias of the person preparing it.
- Materiality: this principle state that only item of material values are recorded.the accountant may not record item which may not have significant effect ion the statement.
- Consistency concept: this is a convention which states that accounting treatment of similar items should be continuously applied from one accounting period to the next in a consistency manner.
- Realization concept: income is considered or regarded to have been earned when goods are dispatched to the customer and he incurs liability for them
- Match concept: this concept states that before profit can be calculated in accounting the expenses and income most be matched together to determine the difference which may be profit or loss.
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