Accounting Concepts and Qualitative Characteristics of Financial Reports

Financial Reports

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
a. Accounting Concepts for preparing financial statements........................................................3
b. Qualitative characteristics of financial reports:.......................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
The essay is about the accounting concepts and characteristics that are related to financial
statements. The essay covers the accounting concepts required for preparing financial statements.
It also consists of the qualitative characteristics to enhance the information of financial statement
for purpose of decision-making process for company and investors.
MAIN BODY
a. Accounting Concepts for preparing financial statements
Accounting concepts are used as the rules and procedures for recording any event and
preparation of financial statement. Financial statement are the written records that states the
activities and financial performance of business (Hasanaj and Kuqi, 2019). The following
concepts are used for preparing financial statements:
Money Measurement Concept: Business use accounting for only those items that can
be expressed in monetary terms. Money is a measurable thing that makes business to record the
inflow and outflow of items easily. In running of business a company performs many activities
related to monetary or non monetary terms (Atshana, Hassana and Saeed, 2020).
For example: Sale or purchase of goods of €2500 can be measured in monetary terms and
hence they are recorded in the books of accounts. Likewise, sincerity, loyalty, of employees can
not be measured in terms of money. Hence, won't be recorded in books of accounts although
they affect the profit and losses of business activities.
Accrual Concept: Accrual concept states that the transaction should be recorded when it
happened irrespective of actual cash-flow of transaction is received. It means something that
becomes due especially when the transaction is made but money is yet to paid or received. The
accrual concept assumes that revenue is realized at the time of sale or purchase of goods
irrespective of when the cash will be received or paid (Christofzik, 2019).
For example: sale of good took place on 15/03/2021 and payment is not received until
20/07/2021. So the transaction must be included in books of 31/03/2021.
Conservatism: Conservatism concept means that a transaction will be recorded in books
only when it is certain that it will be realized in near future. It provides guidelines to accountants
on how to record the transaction with proper verification after recognizing the uncertainty