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Accounting Concepts

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  • 1. Accounting Concepts Accounting Period Concept: Covers the period for which the income has been measured. It is the time between the preparation and presentation of two successive statements of financial position by an organization. The income statement presents the changes in owners’ equity due to operations and other events between one balance sheet and the next. Accrual Concept: Supports the idea that income should be measured at the time major efforts or accomplishments occur rather than when cash is received or paid. Realization Concept: Determines whether a revenue or expense has occurred so that it can be measured, recorded and reported in the financial reports. In general, revenue is recognized along with the associated expenses when an exchange has taken place, the earnings process is complete, the amount of income is determinable, and collection of amounts due is reasonably assured. Matching Concept: Determines that the expenses associated with revenue are identified and measured. Money Measurement Concept: All data is expressed in a common monetary unit that can be added, subtracted, multiplied and divided to produce financial statements and reports, which can then be analyzed. Business Entity Concept: Delineates the boundaries of the organization for which amounts are kept and reports are made. Going Concern Concept: It is assumed that an entity will continue to operate much as it has been operating for an indefinitely long period of time. Cost Concept: Assets are initially recorded by measuring the amount paid for them. As time passes, asset measurements are not changed even if the current value of these assets is changing. Conservation Concept: Revenues and gains are recognized slower and expenses and losses are recognized quicker. Consistency Concept: Once an entity has selected an accounting method for a kind of event or a particular asset, that same method should be used for all future events of the same type and for that asset. Comparability is enhanced from one period to the next. Materiality Concept: Insignificant events need not be measured and recorded. Events judged to be insignificant can be ignored or disregarded.
  • 2. The Accounting Equation and Framework
  • 3. The Accounting Equation and Framework

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