Possible Definition of Accounting Concept Accounting Concepts can be understood as the basic accounting assumption, which acts as a foundation for the preparation of financial statement of an enterprise.
Accounting Concepts, Principles and Basic Terms Definition and introduction The worldview of accounting and accountants may certainly involve some unhelpful characters poring over formidable figures stacked up in indecipherable columns.
However, a short and sweet description of accounting does exist: Accounting is the language of business efficiently communicated by well-organised and honest professionals called accountants.
A more academic definition of accounting is given by the American Accounting Association: The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.
The art of recording, classifying, summarising in a significant manner and in terms of money, transactions and events which are, in part at least of financial character, and interpreting the results thereof.
Accounting uses a formalised and regulated system that follows standardised principles and procedures. The job of accounting is done by professionals who have educational degrees acquired after years of study. While a small business may have an accountant or a bookkeeper to record money transactions, a large corporation has an accounts department, which supplies information to: Managers who guide the company.
Investors who want to know how the business is doing. The government, which decides how much tax should be collected from the company. Accounting Principles Obviously, if each business organisation conveys its information in its own way, we will have a babel of unusable financial data.
Personal systems of accounting may have worked in the days when most companies were owned by sole proprietors or partners, but they do not anymore, in this era of joint stock companies.
These companies have thousands of stakeholders who have invested millions, and they need a uniform, standardised system of accounting by which companies can be compared on the basis of their performance and value.
Therefore, accounting principles based on certain concepts, convention, and tradition have been evolved by accounting authorities and regulators and are followed internationally. The application of the principles by accountants ensures that financial statements are both informative and reliable.
It ensures that common practices and conventions are followed, and that the common rules and procedures are complied with. This observance of accounting principles has helped developed a widely understood grammar and vocabulary for recording financial statements.
However, it should be said that just as there may be variations in the usage of a language by two people living in two continents, there may be minor differences in the application of accounting rules and procedures depending on the accountant. For example, two accountants may choose two equally correct methods for recording a particular transaction based on their own professional judgement and knowledge.
Accounting principles are accepted as such if they are 1 objective; 2 usable in practical situations; 3 reliable; 4 feasible they can be applied without incurring high costs ; and 5 comprehensible to those with a basic knowledge of finance.
Accounting principles involve both accounting concepts and accounting conventions.Accounting Concepts and Principles are a set of broad conventions that have been devised to provide a basic framework for financial reporting. As financial reporting involves significant professional judgments by accountants, these concepts and principles ensure that the users of financial information are not mislead by the adoption of.
Therefore, accounting principles based on certain concepts, convention, and tradition have been evolved by accounting authorities and regulators and are followed internationally.
These principles, which serve as the rules for accounting for financial transactions and preparing financial statements, are known as the “ Generally Accepted. Basic Accounting Notes 17 Accounting Concepts ACCOUNTANCY In the previous lesson, you have studied the meaning and nature of business l It is the very basis of accounting concepts, conventions and principles.
INTEXT QUESTIONS Fill in the blanks with suitable word/words (i) The accounting concepts are basic .. of accounting. Accounting Concepts and Conventions 1) A business firm is separate and distinct from its owners is the assumption under which of the following accounting concepts: 1) Business Entity 2) Going Concern Entity 3) Money Measuring Entity 4) Accounting Period concept 5) None of the above 2) Assumption of accounting entity or business .
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