Important accounting concepts - There are many other accounting principles that support the preparation of financial statements. The most significant ones are the following: 1. The business entity concept – this means that the financial accounting information presented in relates only to the activities not to the owner of the business. From an accounting perspective the company is treated as being separate from its owners. 2. Consistency – users of the financial statements must be able to compare the performance of the company through the years. It is really important that the classification and presentation of the items in the financial statement is retained from one period to the next, except there is a change un circumstances or a requirement …show more content…
The unadjusted cost of Vans is 32,800 and it has a depreciation to date at 12,400 £. Twenty percent of 32,800 is 6,560. So I added 12,400 to 6560 to get the total depreciation. The sum of this is 18,960 this will be subtracted from the total vans at cost. Next adjustment is the owing of the wages at 6,200. Owing means that you have to add the wages and this should be added at the Less Current Liabilities. Another adjustment that I made is the general expenses, I added the general expense under the current assets because it is already paid so the total current asset is changed to 129,680. Total current liabilities should be subtracted from total current assets which is 94,680. Then, to get the working capital, I added the total of non-current assets to the difference of current assets and current liabilities which is 108,520 then I subtracted 30,00 from it which is debentures to have a 78,520. Then for the Equity, I subtracted the dividend paid from the total of issued share capital, share premium, retained earnings and the net profit that I got from the Profit and Loss Account. After all of these steps, I got the balanced
One of the largest concepts in accounting is the equation, Assets = Liabilities + Stockholders Equity. Assets are economic resources owned by the company such as cash and inventory. Assets can be physical property such as machinery, or they can be non-material things like trademarks or patents. Liabilities are something a company is indebted to. Stockholder equities are a source of funding from stockholders. Stockholder’s equity is the money that would remain if a company paid off all of its liabilities and sold all of its assets. The relationship and equation creat...
For example, the Revenue and Expense Recognition Principle, in which companies recognize revenues and expenses in the period of time when these are earned, these are the basis of Accrual Accounting. Another important concept considered is the Cash-Basis in Accounting, in which companies should recognize revenue once cash is taken and expense when cash is paid, but this is not always accepted. After analyzing both sides (the owners and the players), and considering the two versions of Income Statement we can realize that they agree in many points but the dispute is fundamentally in the following
The conceptual framework identifies the primary users of accounting information as investors, creditors, and those who advise them. It also assumes a “prudent” investor; that is, an investor who takes the time to become reasonably well informed with respect to accounting theory and practice. Discuss this concept with respect to the current economic environment. Are different groups of investors “prudent”? According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006).
Positive accounting theory is arguably an explanatory of accounting practice; economic based theory. RL Watts and JL Zimmerman developed positive accounting theory in 1980s at the William E School of Administration at the Rochester University. People do not know what they want at times. So there are different options available to accountants. There are some logical facts to choose one specific method. On choosing one specific method, accountants will maximize their own benefit first, and then company benefit, shareholder benefit and at last social benefits. A specific method will allow accountants to feel better to do their work as they like them the way they know and they way they are best at doing (Jayne Godfrey). For instance, accountant will write accumulated depreciation on asset value side for big company whereas when a poor balance sheet, it is better to put accumulated depreciation on credit side, so the company will have extra money in their debit (Ken Leo, John Hoggett, 2012). Accountants will use choice of accounting method depending on the situation. Positive accounting theory consists of different types of hypothesis such as bonus plan, political cost and debt hypothesis, which allow the managers to choose one specific method over another. It is accountants’ theory and it is descriptive and accountants will tell what to record.
Managerial accounting has changed over the years. Managerial accounting focuses on more than the financial aspect. We will be looking at how managerial accounting affects the business world today. Business also look to the economy, federal taxes, and the financial market so it can make the best decisions for their business.
Accounting principles are main consideration , certain standards like rules of operations are pillar characteristicis to built accounting statements. Accounting principles can be presented in many ways, sometimes its create confusion for readers mainly for beginners, but still acoounting principles are main tool to obtained financial statements. Its hold the whole acoounting process together.
The first conceptual framework for financial reporting was developed in the 1970s by the Financial Accounting Standards Board (FASB) in the US. The conceptual framework is a series of Statements of Financial Accounting Concepts (SFACs), taken as a whole, set the objectives, characteristics and other concepts that determine how financial information is measured and displayed in financial statements. In financial reporting, a conceptual framework is a theory of accounting prepared by a standard-setting body against which practical problems can be tested objectively. A conceptual framework deals with fundamental financial reporting issues. Accordingly, the International Accounting Standards Board (IASB) developed
In the above cited the accounting of business is use to record and measure the size of the business, in terms of gains and loss on monthly, quarterly Semi- Annual and Annual basis. Use of the accounting in business, gives a clear review of net income, helps to plan budget of the business accordingly.
Accounting dates back as far as first centuries, is the language of business. As everything has gone through many changes, accounting has also changed many times through out the centuries. It went from the use of abacus to the most advanced softwares, and computers. With these drastic improvements nowadays accounting, financial accounting and management are facing big challenges. From the presentation of the reports to communication to the users, investors, and owners, the accounting field has gained totally a new shape from two decades ago. Today with the dynamic change in every aspect of life, the accounting field has to act fast and be able to adapt these new changes and challenges in order to survive.
(i) Judgement and materiality play a significant role in helping to ensure that the selection of accounting policies in presenting the financial statements for a true and fair picture of the company’s financials. This means that entities should provide the financial statements with comparability, consistency and clarity to users of these statements. Entities must follow accounting policies required by IFRS and AASB should be relevant to particular circumstance.
The business entity concept is the accounting records reflect the financial activities of a specific corporate entity. It is separate from its owners, for example stockholders, managers or the proprietor, that means business can own assets, have liabilities and enter into business transaction. In other words, in the point of view of Generally Accepted Accounting Principles (GAAP), the owner and the business are two separate entities. Besides that, partnership and corporations are also should be accounted for separately. For example
Preparing general-purpose financial statements; including the balance sheet, income statement, statement of retained earnings, and statement of cash flows; is the most important step in the accounting cycle because it represents the purpose of financial accounting.
Accounting aids the government and organisations in decision making for their financial stability. This numerical data helps solve real life problems and contributes to how the economy and businesses perform.
Equity in business means an owner cannot own 100% of the business shares ownership with others and accounting for business should be separate from all personal affairs of its own. This means the person(owner) should not place any personal assets to the business balance sheet. For e.g.Expenditure of car should not be written on the balance sheet.
A financial manager is responsible for budgeting, projecting cash flows, and determining how to invest and finance project (Boundless, 2014). They are responsible for knowing how much the product or project is expected to cost and how much revenue it is expected to earn so that the company can invest the appropriate amount in the product or project (Boundless, 2014). Financial managers take on various roles and positions while continuing to carry out their main job responsibilities.