Accounting Concepts and Characteristics of Financial Reports

This report provides an overview of accounting concepts used for financial statements and the characteristics of financial reports. It covers the principles of accounting, including money measurement, going concern, business entity, dual aspect, and historic cost concepts. The report also discusses the qualities of financial reports, including simplicity, relevance, compatibility, understandability, and completeness.

Accounting for business

Table of Contents
Introduction......................................................................................................................................1
Accounting concepts....................................................................................................................1
Characteristics of financial reports..............................................................................................3
Conclusion.......................................................................................................................................4
References........................................................................................................................................4
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Introduction
Accounting for business represents systematically recording analysing and interpreting and the
presentation of financial information of the company (Hsieh and et.al 2018). Business accounting
also collects differential information which is based on the activities of the business. This report
provides accounting concept which is used for the preparation of financial statements. Along
with the characteristics of financial reports is being mentioned in this report.
Accounting concepts
Accounting concepts refers to set of general rules and guidelines when they need to deal any
accounting situation (Zeff and et.al 2020). In other words accounting concepts are rules
guidelines assumptions and parameters which used for accounting operations. They are popularly
known as Accounting Principles which represents fundamental of preparing financial statements.
Financial statements
Financial statements provide formal records of all the financial activities of the business.
Financial statements used to convey the overall financial position and health of the organisation.
In short financial statements are referred as an written records for the business activities. The
major reason behind preparing financial statement is that is used to provide all the information
about income and expenditure of the company.
There are major five accounting concepts which used for the preparation of financial statements.
Money Measurement Concept
Organisation can only do accounting for those items which can be expressed in the terms of
money. Money has one of the biggest advantages that it is beneficial and it can be used as a
common denominator which represent all the resources of the company in the terms of money.
But all the resources are not capable of measured in the terms of money so they will not include
in the balance sheet (Christ and et.al 2018). Money Measurement Concept work on this
parameter and therefore there are some limits of this concept to prepare accounting reports
because it measured only those items which can be expressed in monetary terms.
Going concern concept
This concept also works on assumption that the business will never stop their operations and will
continue for long duration. In other words it can be stated that business does not have any
intention to sell off assets (Russell and et.al 2020). When business need to sell their assets then it
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can be stated that business is in trouble and therefore it can wind up in the near future but as per
this concept no one company wants to shut down their business.
Business entity concept
As per this concept and for the purpose of accounting business and its owner should be treated
separate. Major reason behind following business entity concept is that business has some
separate liabilities and the owner has different abilities and therefore both are treated separate
from each other.
Dual aspect concept
According to this concept each and every transaction must have two aspects and both of them
should affect the balance sheet (Krisna and et.al 2021). For instance purchase of vehicle for cash
will treated in the balance sheet first the Asset which is vehicle will increase and there should be
decrease in the cash.
Historic cost concept
All the acids which is shown in the balance sheet the should be valued at their historical cost.
This concept used to measure asset and its value which is being used by accountants so that they
can know the current value of the assets.
Characteristics of financial reports
Financial reports must have following qualities and characteristics so that they can meet the
needs of business.
Simplicity
Simplicity is must for the financial reports (Zeshan and et.al 2021). Simplicity states that all the
data which is mentioned in the financial reports should be prepared in simple language and can
be understandable. The overall size of financial reports should not be e large it should be
prepared in a way which can use for accounting machines.
Relevance
In the financial reports all the information which reveals the purpose of the company should be
properly presented. It was present all the activities of the company E with the coordination
objective and principles which is been followed by the company otherwise all the information
which is mentioned in financial reports will not remain relevant and appropriate. This will make
all the information useful for the investors as well as other people.
Compatibility
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Financial reports should represent comparative study. All the static sticks of financial reports
must be presented in a way which can be studied comparatively with the records of previous
years so that it will become easier for the investors that we can compare the current outcome of
the company with their past records so that they can know the accurate status of the company.
Comparative explanation will also give all the necessary details about the risk and perception of
the companies so that investors can choose their decisions whether they want to make more
investment in the company or not (Massoudi and et.al 2019). It is very necessary for the
company that they must provide all the additional information in the financial reports of the
company this report also includes the various ratios so that it will become easier for people to
compare.
Understandability
The main job of financial report is to provide all the necessary information about the company
and its resources along with the performance (Charifzadeh and et.al 2017). Apart from this the
format of financial reports should not be very complicated for the people to understand. Format
should be clean and free size so that it can every person can get knowledge about the accounting
principle used by the company by studying their financial reports and they can come up to the
conclusion. Understandability is one of the best characteristics and quality of financial reports so
that it provides clear and understanding about the financial information which is being provided
by the financial report.
Completeness
Completeness is another characteristic of financial reports it emphasizes that financial reports
provide complete financial details so that organisation can meet their objectives (Schaltegger and
et.al 2017). Financial reports must use necessary tables’, explanation and comments.
Conclusion
After analysing the entire report it can be concluded that this report focuses on accounting for
business. Furthermore this report provides all the necessary accounting concept which is being
used by the company so that they can prepare accurate financial statements and provide all the
necessary information to their investors. It also states about characteristics of financial reports so
that organisation can prepare accurate financial report.
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References
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Hunan University Natural Sciences. 48(6).
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Russell, H.M., Ariail, D.L., Smith, K.T. and Smith, L.M., 2020. Analysis of compassion in
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Zeshan, A. and Lodhi, A.S., 2021. Investigating Business Students’ Perceptions about Strategies
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