2. Accounting entity Concept
The financial affairs of the business must
be kept separate to the personal financial
affairs of the owner and other entities.
For example: Paying for personal telephone bill
using business cheque will be recorded as
drawings in the business records.
3. Monetary measurement
All items are stated in dollar terms ($).
Only items that can be given a dollar value
will be included in the financial
statements.For example: Bought 2 photocopiers from
Australia will be recorded in NZ currency
Even though they have been paid for in
Australian dollars.
4. Going concern
The financial reports of a business are prepared
on the assumption that the business will
continue into the foreseeable future.
For example: Property, Plant and Equipment are
recorded at their historical cost and will be expected
to be retained in the business in the future.
5. Reporting period
The life of the business is divided into equal
nominated time periods (usually one year) in
order to provide timely information for decision-
making.
For example: 1 April to 31 March so statements
can be measured on a regular basis
and also allows for comparisons.
6. Accrual Basis
The effects of transactions are reported in the
financial statements of the period to which they
relate.
Remember: The 2 “R”s : Report and relate.
7. Historical Cost
Assets are recorded in the financial
statements at their original purchase price.
For example: The Delivery Van is recorded
at the original purchase price of $15000.
Today the market value would be much less than that.
