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Accounting ConceptsJournal

This document outlines key accounting concepts used when preparing financial statements. The concepts include: treating the business as separate from its owners, assuming the business will continue operating, using a defined accounting period, recording transactions at historical cost, only including monetary transactions, being objective not subjective, recognizing transactions when they occur, considering materiality, transactions having double effects, matching income and expenses, consistency over time and between periods, and conservatism by not recognizing profits until earned and losses until foreseeable.

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hoozhoon hoodhood
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© Attribution Non-Commercial (BY-NC)
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47 views

Accounting ConceptsJournal

This document outlines key accounting concepts used when preparing financial statements. The concepts include: treating the business as separate from its owners, assuming the business will continue operating, using a defined accounting period, recording transactions at historical cost, only including monetary transactions, being objective not subjective, recognizing transactions when they occur, considering materiality, transactions having double effects, matching income and expenses, consistency over time and between periods, and conservatism by not recognizing profits until earned and losses until foreseeable.

Uploaded by

hoozhoon hoodhood
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Accounting concepts

These are ideals adopted when preparing accounts and other financial statements. Concept Details Business Entity The business is a separate person from the owner Going concern It is assumed that the business will continue its operation in the foreseeable future unless otherwise mentioned Accounting period Each business must have a definite period of time for preparing its accounts Historical cost All transactions are accounted at values at the date of occurrence Money measurement Only transactions with a monetary value are accounted for Objectivity Items should not reflect personal opinion but rather facts Realisation Transaction should be accounted only on occurrence Materiality Transactions should be treated according to their value impact on the accounts Dual aspect Each transaction has a double effect which has to be accounted Matching/Accruals Income should be matched with the expenses incurred to earn them whether paid or not Consistency Whatever methods or rates have been adopted have to be applied continuously throughout the year and over accounting periods Prudence/Conservatism Profits should not be accounted unless earned and losses should be accounted if foreseen

Journal
A journal or general journal or journal proper is a subsidiary book which records those transactions which are not recorded in the other subsidiary books. A journal is kept as an explanation for such transactions. It has a debit column and a credit column and includes a narration of the transaction. Uses of Journal (i)Adjust opening and closing balances ABC and Co has the following balances at start of 2003 prepare a journal entry to record them in the ledger. $ Motor vehicle 5000 Debtors 7000 Cash 2000 Capital 14000 (ii)Adjust for closing balances ABC and Co has the following closing balances as at 31.12.03.Prepare Journal entries with narrations to adjust them. (a)Closing stock $5000 (b)Insurance due$3000 (iii)Assets bought on credit. Equipment was bought on credit from AGH Ltd on 1 Feb 2004 (iv)Correction of errors

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