Accounting Concepts (Cambridge (CIE) IGCSE Accounting): Flashcards
Exam code: 0452 & 0985
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Why must accountants comply with the accounting concepts?
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Cards in this collection (9)
Why must accountants comply with the accounting concepts?
So that a business's financial statements can be accurately compared with those of similar businesses.
They also let an owner compare the year-by-year performance of their own business.
Define the business entity concept.
Financial statements only record and report on business activities.
The owner's personal assets, expenses and liabilities are kept out; money they put in is capital and money they take out is drawings.
Define the going concern concept.
The assumption that a business will continue to operate into the foreseeable future, carrying on its current trading.
That is why assets are recorded at cost or net book value rather than at what they would fetch if sold.
Define the realisation concept.
A transaction is only recorded when payment is made or ownership has been transferred.
A sale counts once there is a payment or a promise to pay, such as agreed credit.
Complete the sentence about the duality concept:
Each transaction is recorded using two accounting entries of
and values.The completed sentence is:
Each transaction is recorded using two accounting entries of opposite and equal values.
True or False?
A business may change its method of depreciation.
True.
Consistency requires the same method to be used each year, but it can be changed where there is a good reason. The decision and its impact then have to be recorded.
A business owner receives a bad review from a customer. Why is it not entered in the accounting records?
Because of money measurement.
Only transactions involving money are reported, so non-monetary information such as reviews, reputation and staff experience is left out.
The rent has not been paid, but the amount still appears in the statement of profit or loss. Which concept is that?
Matching, also called accruals.
Incomes and expenses are matched to the year in which the benefit was gained, whatever has actually been paid.
Unused paper clips at the year end are treated as an expense rather than an asset. Which concept is that?
Materiality.
Items of low monetary value are grouped rather than given their own accounts, because tracking them separately would cost more than the information is worth.
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