Accounting Concepts and Qualitative Characteristics of Financial Reports

This essay covers the aspects of accounting concepts and characteristics of financial statements. It explains the various rules and assumptions which are kept in consideration by companies while preparing their financial statements and making financial transactions. The essay also discusses the qualitative characteristics of financial reports and how they assist users in determining a company's position and making better decisions. The subject is Accounting for Business and the course code is not mentioned. The essay does not mention any specific college or university.

ACCOUNTS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Accounting concept.....................................................................................................................3
Qualitative characteristics of financial reports............................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Following of accounting concepts and its inculcation will lead to have better presentation
and enhancement of its reliability and validity. This will act as base for making better decision in
association with the company. Likewise, financial statements are also the true reflection of the
company's financial performance and position. This essay will cover the aspects of accounting
concepts and characteristics of financial statements.
MAIN BODY
Accounting concept
These are the various rules and assumptions which is being kept in consideration by
companies while preparing their financial statements and making financial transactions.
There are various accounting concepts which is kept to be complied by companies:
Dual aspect:
It is one of the major and fundamental concept of accounting. As per this concept there
are dual effect of every transactions. This means that every transaction affect two accounts and
aspects in association with business (Mykolaiovych and et,al., 2020). It also includes accounting
equation in the form of Asset= Liabilities+equities which means that the value of assets will
always be equal to the sum of liabilities and equities. This can be understood with an example of
transaction like purchase of goods on cash. This transaction has dual effect in terms reduction of
cash as money is being given for the purchase of goods. However, the quantities of goods raised.
Accrual concept:
According to this concept all the expenses and income are to be recorded in the same
accounting period as well as they have been earned or incurred. However, this concept also said
that the recording of transactions will be performed whether cash has been paid or not in case of
expense and received or not in case of revenue (Porter and Norton, 2017). For example: Suppose
business ABC make a sell of goods on 20, March and its payment is not yet received which
means 15, April. Then as per accrual concept, revenue will be recognized in the financial
statements of March itself. It follows the matching concept under which revenue must be equal
to expenses.
Realisation concept:

As per this concept revenue must be recorded in the financial statements only when it
will be realized. This means making sell will lead to revenue recognition but receiving order is
not. It also means that revenue must be realized only when cash has been received or there is a
right to receive cash on the sale of goods and services. For example XYZ make a sale of goods
on credit at £600 in 2021 and the products will be delivered in 2021. Here revenue must be
realize in full amount because it is being assumed that payment will be received in the same year
itself.
Accounting period:
As per this concept all the financial must be prepared at the end of the financial year. This
means that all business must follows the concept of accounting period under which within the
given period they have to make preparation of financial statements. This will lead to the
preparation of statements at regular intervals (Budhathoki, 2021). This concept is useful for the
purpose of tax, determination of profits and various other. The best example is the preparation of
financial statements including profit and loss accounts, Balance sheet, and others.
Consistency concept:
As per this concept the accounting methods and mode of business operation must be
consistent. This means that the accounting methods and mode which is being followed by the
company must be consistent and need not be changed. This concept will lead to make
comparison easy (Byun and Roland, 2021). This means that the financial statements which are
prepared with the same method must be easy to compare. For example: if a company is
following a method of straight line method in regard to depreciation charge then it needs to
follow that method only while conducting accounting. No changes were need to be made like
adoption of written down value method.
Qualitative characteristics of financial reports
Financial reports:
These are the reports or statements under which formal recording of financial activities
are to be made. Here all the relevant financial information need to be presented. Financial reports
reflect the true image of the company in terms of financial health.
Characteristics:

Financial reports carries a feature of comparability which means that with the study of
financial statements comparison can be made easily (Zhang, 2018). This is further followed by
its analysis and its interpretation. As comparison will enable the users to determine the financial
position and efficiency with regard to the company so this is a major characteristic in association
with the financial report. This is supported by consistency concept which make the comparison
easy.
Likewise, financial report also possess a characteristic of relevancy. This means it
contains all the relevant information which is being required and affect the decision-making of
the users (Lev, 2018). As per this characteristic all the relevant information must be inculcated in
the financial reports and no omission of the information will be made so that the decision of the
user will be affected.
Relatability is also a major characteristic of financial statements because being reflective
of company's financial health and information it only contains reliable information. Similarly, as
these are the base for making decision so possession of this characteristic will also assist the
users in taking most suitable decision in association with the company. Also the information that
are contained in financial statements must be free from all the errors and it is also raised its
reliability. In the same manner understandability is also a major feature of the financial
statement. As per this feature the user will be able to make understanding about the company and
its financial information and position. This is also supported by the working notes which also
make the explanation of the information contain in financial statements.
CONCLUSION
From the above essay it can be concluded that accounting concepts are the base that are
to be considered by companies in order to make preparation of its accounts. This will lead to
have adequate recording of transaction and preparation of financial statements. Likewise, it is
also understood that financial reports carries various characteristics like reliability, relevance,
comparability and various others which will assist the user to determine company's position
along with taking of better decision.

REFERENCES
Books and journals
Budhathoki, N.B., 2021. Accounting Concepts.
Byun, S. and Roland, K., 2021. Analyst bias and forecast consistency. Accounting & Finance.
Lev, B., 2018. The deteriorating usefulness of financial report information and how to reverse
it. Accounting and Business Research. 48(5). pp.465-493.
Mykolaiovych, and et,al., 2020. Coherence of accounting systems: transcendence of content and
immunity of purpose. Научный журнал «Вестник НАН РК». (2). pp.176-184.
Porter, G.A. and Norton, C.L., 2017. Using financial accounting information: the alternative to
debits and credits. Cengage Learning.
Zhang, J.H., 2018. Accounting comparability, audit effort, and audit outcomes. Contemporary
Accounting Research. 35(1). pp.245-276.