Accounting Concepts - Revision history

Simon Clive at 05:01, 21 June 2011

2011-06-21T05:01:19Z

Eliza at 06:11, 8 March 2011

2011-03-08T06:11:46Z

Andrew at 00:08, 7 February 2011

2011-02-07T00:08:55Z

Admin at 04:53, 21 January 2011

2011-01-21T04:53:25Z

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2011-01-21T04:46:26Z

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[[Account]]
[[Accounting Concepts]]
[[Account Types]]
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[[Accounts Reports]]
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[[BAS Report]]
[[BAS Report List]]
[[Cash Flow Forecast]]
[[Cash Flow Statement]]
[[Dashboard]]
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== '''Introduction''' ==

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 Four important accounting concepts underpin the preparation of any set of accounts:
-*Goi'''ng Concern'''<br>
+*'''Goi''''''ng Concern'''<br>
 Accountants assume, unless there is evidence to the contrary, that a company is not going <br>broke. This has important implications for the valuation of assets and liabilities.

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-== '''Accounting Concepts and Conventions''' ==
+== '''Accounting Concepts and Conventions'''  ==
 In drawing up accounting statements, whether they are external "financial accounts" or internally-focused <br>"management accounts", a clear objective has to be that the accounts fairly reflect the true "substance" of <br>the business and the results of its operation.
 The theory of accounting has, therefore, developed the concept of a "true and fair view". The true and fair <br>view is applied in ensuring and assessing whether accounts do indeed portray accurately the business' <br>activities.
 To support the application of the "true and fair view", accounting has adopted certain concepts and conventions <br>which help to ensure that accounting information is presented accurately and consistently.
-=== '''Accounting Conventions''' ===
+=== '''Accounting Conventions'''  ===
 The most commonly encountered convention is the "historical cost convention". This requires transactions <br>to be recorded at the price ruling at the time, and for assets to be valued at their original cost.
 Under the "historical cost convention", therefore, no account is taken of changing prices in the economy.
-−
-The other conventions you will encounter in a set of accounts can be summarised as follows:
 *'''Monetary measurement'''
 Accountants do not account for items unless they can be quantified in monetary terms. Items that are not <br>accounted for (unless someone is prepared to pay something for them) include things like workforce skill, <br>morale, market leadership, brand recognition, quality of management etc.
 *'''Separate Entity'''
 This convention seeks to ensure that private transactions and matters relating to the owners of a business <br>are segregated from transactions that relate to the business.
 *'''Realisation'''
 With this convention, accounts recognise transactions (and any profits arising from them) at the point of sale <br>or transfer of legal ownership - rather than just when cash actually changes hands. For example, a company <br>that makes a sale to a customer can recognise that sale when the transaction is legal - at the point of contract. <br>The actual payment due from the customer may not arise until several weeks (or months) later - if the <br>customer has been granted some credit terms.
 *'''Materiality'''
 An important convention. As we can see from the application of accounting standards and
 accounting policies, the preparation of accounts involves a high degree of judgement. Where decisions are <br>required about the appropriateness of a particular accounting judgement, the "materiality" convention suggests <br>that this should only be an issue if the judgement is "significant" or "material" to a user of the accounts. The <br>concept of "materiality" is an important issue for auditors of financial accounts.
-=== '''Accounting Concepts''' ===
+=== '''Accounting Concepts'''  ===
 Four important accounting concepts underpin the preparation of any set of accounts:
 *Goi'''ng Concern'''<br>
 Accountants assume, unless there is evidence to the contrary, that a company is not going <br>broke. This has important implications for the valuation of assets and liabilities.
 *'''Consistency'''<br>
 Transactions and valuation methods are treated the same way from year to year, or period <br>to period. Users of accounts can, therefore, make more meaningful comparisons of financial performance <br>from year to year. Where accounting policies are changed, companies are required to disclose this fact and <br>explain the impact of any change.
 *'''Prudence'''<br>
 Profits are not recognised until a sale has been completed. In addition, a cautious view is <br>taken for future problems and costs of the business (the are "provided for" in the accounts" as soon as their <br>is a reasonable chance that such costs will be incurred in the future.
 *'''Matching (or "Accruals")'''<br>
 Income should be properly "matched" with the expenses of a given accounting period.
-==== Key Characteristics of Accounting Information ====
+==== Key Characteristics of Accounting Information  ====
 There is general agreement that, before it can be regarded as useful in satisfying the needs of various user <br>groups, accounting information should satisfy the following criteria:
 *'''Criteria'''<br>
 What it means for the preparation of accounting information
 *'''Understandability'''<br>
 This implies the expression, with clarity, of accounting information in such a way <br>that it will be understandable to users - who are generally assumed to have a reasonable knowledge of <br>business and economic activities
 *'''Relevance'''<br>
 This implies that, to be useful, accounting information must assist a user to form, confirm <br>or maybe revise a view - usually in the context of making a decision (e.g. should I invest, should I lend money <br>to this business? Should I work for this business?)
 *'''Consistency'''<br>
 This implies consistent treatment of similar items and application of accounting policies
 *'''Comparability'''<br>
 This implies the ability for users to be able to compare similar companies in the same industry <br>group and to make comparisons of performance over time. Much of the work that goes into setting accounting <br>standards is based around the need for comparability.
 *'''Reliability'''<br>
 This implies that the accounting information that is presented is truthful, accurate, complete <br>(nothing significant missed out) and capable of being verified (e.g. by a potential investor).
 *'''Objectivity '''<br>
 This implies that accounting information is prepared and reported in a "neutral" way. In other <br>words, it is not biased towards a particular user group or vested interest<br><br>

← Older revision		Revision as of 00:08, 7 February 2011
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−	== '''~~Overview~~''' ==	+	== '''Accounting Concepts and Conventions''' ==
		+
		+	In drawing up accounting statements, whether they are external "financial accounts" or internally-focused <br>"management accounts", a clear objective has to be that the accounts fairly reflect the true "substance" of <br>the business and the results of its operation.
		+
		+	The theory of accounting has, therefore, developed the concept of a "true and fair view". The true and fair <br>view is applied in ensuring and assessing whether accounts do indeed portray accurately the business' <br>activities.
		+
		+	To support the application of the "true and fair view", accounting has adopted certain concepts and conventions <br>which help to ensure that accounting information is presented accurately and consistently.
		+
		+	=== '''Accounting Conventions''' ===
		+
		+	The most commonly encountered convention is the "historical cost convention". This requires transactions <br>to be recorded at the price ruling at the time, and for assets to be valued at their original cost.
		+
		+	Under the "historical cost convention", therefore, no account is taken of changing prices in the economy.
		+
		+	The other conventions you will encounter in a set of accounts can be summarised as follows:
		+
		+
		+
		+	*'''Monetary measurement'''
		+
		+	Accountants do not account for items unless they can be quantified in monetary terms. Items that are not <br>accounted for (unless someone is prepared to pay something for them) include things like workforce skill, <br>morale, market leadership, brand recognition, quality of management etc.
		+
		+	*'''Separate Entity'''
		+
		+	This convention seeks to ensure that private transactions and matters relating to the owners of a business <br>are segregated from transactions that relate to the business.
		+
		+	*'''Realisation'''
		+
		+	With this convention, accounts recognise transactions (and any profits arising from them) at the point of sale <br>or transfer of legal ownership - rather than just when cash actually changes hands. For example, a company <br>that makes a sale to a customer can recognise that sale when the transaction is legal - at the point of contract. <br>The actual payment due from the customer may not arise until several weeks (or months) later - if the <br>customer has been granted some credit terms.
		+
		+	*'''Materiality'''
		+
		+	An important convention. As we can see from the application of accounting standards and
		+
		+	accounting policies, the preparation of accounts involves a high degree of judgement. Where decisions are <br>required about the appropriateness of a particular accounting judgement, the "materiality" convention suggests <br>that this should only be an issue if the judgement is "significant" or "material" to a user of the accounts. The <br>concept of "materiality" is an important issue for auditors of financial accounts.
		+
		+	=== '''Accounting Concepts''' ===
		+
		+	Four important accounting concepts underpin the preparation of any set of accounts:
		+
		+	*Goi'''ng Concern'''<br>
		+
		+	Accountants assume, unless there is evidence to the contrary, that a company is not going <br>broke. This has important implications for the valuation of assets and liabilities.
		+
		+	*'''Consistency'''<br>
		+
		+	Transactions and valuation methods are treated the same way from year to year, or period <br>to period. Users of accounts can, therefore, make more meaningful comparisons of financial performance <br>from year to year. Where accounting policies are changed, companies are required to disclose this fact and <br>explain the impact of any change.
		+
		+	*'''Prudence'''<br>
		+
		+	Profits are not recognised until a sale has been completed. In addition, a cautious view is <br>taken for future problems and costs of the business (the are "provided for" in the accounts" as soon as their <br>is a reasonable chance that such costs will be incurred in the future.
		+
		+	*'''Matching (or "Accruals")'''<br>
		+
		+	Income should be properly "matched" with the expenses of a given accounting period.
		+
		+	==== Key Characteristics of Accounting Information ====
		+
		+	There is general agreement that, before it can be regarded as useful in satisfying the needs of various user <br>groups, accounting information should satisfy the following criteria:
		+
		+	*'''Criteria'''<br>
		+
		+	What it means for the preparation of accounting information
		+
		+	*'''Understandability'''<br>
		+
		+	This implies the expression, with clarity, of accounting information in such a way <br>that it will be understandable to users - who are generally assumed to have a reasonable knowledge of <br>business and economic activities
		+
		+	*'''Relevance'''<br>
		+
		+	This implies that, to be useful, accounting information must assist a user to form, confirm <br>or maybe revise a view - usually in the context of making a decision (e.g. should I invest, should I lend money <br>to this business? Should I work for this business?)
		+
		+	*'''Consistency'''<br>
		+
		+	This implies consistent treatment of similar items and application of accounting policies
		+
		+	*'''Comparability'''<br>
		+
		+	This implies the ability for users to be able to compare similar companies in the same industry <br>group and to make comparisons of performance over time. Much of the work that goes into setting accounting <br>standards is based around the need for comparability.
		+
		+	*'''Reliability'''<br>
		+
		+	This implies that the accounting information that is presented is truthful, accurate, complete <br>(nothing significant missed out) and capable of being verified (e.g. by a potential investor).
		+
		+	*'''Objectivity '''<br>
		+
		+	This implies that accounting information is prepared and reported in a "neutral" way. In other <br>words, it is not biased towards a particular user group or vested interest<br><br>

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-[[Profit & Loss]]
+[[Profit and Loss]]
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 [[Summary Sheet]]
@@ Line 21: / Line 21: @@
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-== '''Introduction''' ==
+== '''Overview''' ==