Accounting Concepts for Financial Statements - London UoS BA Business

This report provides an overview of key accounting concepts used in the preparation of financial statements, including the matching concept, dual aspect concept, realization concept, accrual concept, and money measurement concept. Each concept is illustrated with examples to demonstrate its application in accounting practices. The report also discusses the qualitative characteristics of financial reports, such as relevance, faithful representation, verifiability, timeliness, understandability, and comparability, highlighting their importance in making financial information useful for various users. This analysis is crucial for understanding the theoretical and conceptual frameworks underpinning financial accounting.

ACCOUNTING FOR BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASKS.............................................................................................................................................1
a) Five accounting concepts assisting in the preparation of the financial statements illustrated
with suitable examples.................................................................................................................1
b) Qualitative characteristics of the financial report making it useful for the users of such
information...................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Accounting for the business is one of the significant aspects that shall be analysing the
end result of the performance of the company during the year in terms of profitability in the
business. The current project shall be highlighting the fundamental accounting concepts that
assists in the preparation of the financial statements and accordingly the reports that are formed
possess the qualitative characteristics. The report shall be presenting how such characteristics
help the users of the financial information.
TASKS
a) Five accounting concepts assisting in the preparation of the financial statements illustrated
with suitable examples
Matching concept
The matching concept of accounting states that the revenues that are earned in respect of
some job and against it the expenditure that are made for earning such revenues are to be
accounted for in the similar accounting period of the company. This shall be providing the
realistic view of the profitability in the business by the incorporating the revenues and the
expenses belonging to the particular period in accounting (Ritonga, 2020).
Example:- If the company has the policy of paying 10% commission on the sales to the salesman
and suppose in January the sales are executed for 10000. Then matching with the revenues the
expense of 1000 sales commission shall also be accounted for in January despite the fact that the
payment of it is made in February. This shall be giving the accurate profitability of the company
at 9000.
Dual aspect concept
This concept of accounting states that every transaction has the dual aspect and both the
aspects are to be separately recorded in the books of account. So for every transaction there is
debit account and the equal and opposite credit account that has given rise to the fundamental
accounting equation that is Assets = Liabilities + Capital. This shall be leading to the balancing
and the matching of the trial balance and the balance sheet of the company. This completes the
double entry system of accounting.
Example:- Suppose the capital is brought in by the owners in the form of cash, the dual aspect
are to be recorded for this transaction. In this the cash account shall be debited and increased as
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there is inflow of cash and simultaneously the capital account shall be credited showing the
increase in the liability for the business.
Realization concept
The realization concept of accounting specifies that the revenues in the business are only
to be recognized and accounted for when they are actually realised in the business which means
they form the legal right to receive such money (Zeff and Dyckman, 2020). This shall also be
contributing to provide the realistic and accurate view of profitability and the performance by the
business.
Example:- If the sales order is received for 100000 and the delivery for the same has been made
then it can be recognized as sales post the delivery and the revenues can be accounted for,
despite the fact that the payment in respect of the same shall be made at a later date.
Accrual concept
This accounting concept specifies that the revenues and the expenses of the business are
to be accounted when they become due or are accrued in nature. This means that the revenues
become receivable and then expenses of the company becomes payable, on that day they are to
be accounted for irrespective of the cash receipts and the payments.
Example:- The revenues from sales are accrued when the delivery is completed even though the
party has not made payments or have defaulted in making the payments. The sales are to be
recognized on the date of delivery.
Money measurement concept
The money measurement concept of accounting mentions that all the transactions that are
to be accounted for in the company books of account are to be expressed in money terms that is
the currency of the country. The quantitative aspect of the transactions can only be accounted for
in the books of accounts and on the basis of this the profitability is ascertained.
Example:- Suppose the company has purchased the raw material worth 100000 either on the cash
or the credit basis can be accounted for in the books of accounts (Hsieh, Ma and Novoselov,
2018). But the non-monetary transactions like the honesty of the employees or them customer
satisfaction of the customers cannot be accounted for in the books.
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b) Qualitative characteristics of the financial report making it useful for the users of such
information
The users of the financial information pertaining to the company shall be verifying the
various financial reports having the basic qualitative characteristics assisting in evaluation of the
company performance. These characteristics are:- Relevance- It suggests that the accounting information must be relevant and useful in the
financial decision-making process specifying the past records for the confirmation and
shall be facilitating the prediction of the future possible events. Faithful representation- This characteristic states that the accounting representations
must be reliable in terms of completeness, free from errors and unbiased. This refers to
the accurate display of all the transactions, claims and the resources that are possessed by
the company (What are the Qualitative Characteristics of Accounting Information?
2021). Verifiability- Verifiability identifies that the information must be reproducible to the
similar extent by reproducing the results through the data and the relevant assumptions of
the company. Timeliness- It means that the accounting information is made available with the various
users on the timely and efficient basis. This means that the regular updates are provided
and not the older details, so that the users can apply them in the process of decision-
making (Brown and et.al., 2019). Understandability- This shows that the information must be easily accessible and
understandable in the simpler format for the average users of the accounting information
so that they can meet their purpose.
 Comparability- This reflects that the accounting policies, standards, concepts and the
different methods must be rightfully applied so that the comparison can be facilitated
over the period and also with the other competitors in the market.
CONCLUSION
From the above project it can be summarized that accounting is one of the significant
functions that shall help in the assessment of the company performance and that is the reason that
it needs to be accurately done to depict the results. For that the various concepts are to be applied
developing the qualitative characteristics for the assistance of the users.
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REFERENCES
Books and Journals
Brown, C. and et.al., 2019. Accounting for business adaptations in economic disruption
models. Journal of Infrastructure Systems. 25(1). p.04019001.
Hsieh, C. C., Ma, Z. and Novoselov, K. E., 2018. Accounting conservatism, business strategy,
and ambiguity. Accounting, Organizations and Society. 30. p.1e15.
Zeff, S. A. and Dyckman, T. R., 2020. Accounting and Business Research: the first 50 years,
1970–2019. Accounting and Business Research. 50(4). pp.360-395.
Ritonga, I. T., 2020. Public Accounting and Business Accounting: Two Different
Upstream. Journal of Accounting and Investment. 21(3). pp.401-416.
Online
What are the Qualitative Characteristics of Accounting Information? 2021. [Online] Available
through: <https://corporatefinanceinstitute.com/resources/knowledge/accounting/
qualitative-characteristics-of-accounting-information/>
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