Accounting Concepts and Qualitative Characteristics of Financial Reports

This essay discusses accounting concepts including consistency, accrual, conservatism and various other aspects which every company considers while making and preparing their financial reports. It also throws light on the qualitative characteristics of financial reports.

ACCOUNTING FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK-A...........................................................................................................................................3
Accounting concepts....................................................................................................................3
TASK-B...........................................................................................................................................4
Qualitative characteristics of financial report..............................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting concepts including consistency, accrual, conservatism and various other are the
major aspect which every company consider while making and preparing their financial reports.
These concepts are the base on which financial report made. This essay will throw a light on
accounting concepts along with the features of financial reports.
TASK-A
Accounting concepts
These are the conventions and the assumptions or guidelines that are used and being
considered by companies while preparing their financial statements or accounts. These are the
base on which financial statements are being made.
Consistency:
As per this accounting concept there must be consistency with respect to accounting
methods. This means that the accounting method once adopted will remain same with the
concerne4d company (Chen and Gong, 2019). For example, if a company is using straight line
method or written down method with respect to depreciation then it must need to continue with
the same.
Conservatism:
Under this concept revenue and expenses would be treated differently. This means that
the revenue must be recognised only when there would be reasonable certainty for example
receiving of purchase order or the signed invoice. However, expenses must be recognised as
soon as they occur which also means that there would be certain chances of its occurrence
(Solichah and Fachrurrozie, 2019). This means that as per this concept there must be an early
recognition of expenses in comparison of income. This means that the company must depict the
overestimation of expenses with regard to income.
Business entity:
As per this concept the business must be treated as differently with the owner. This means
that the transaction of the owner must be different from the business. For example the personal
transaction of owner must not be debited and meet from the business credit card. This concept
will lead to have better maintenance of the books of accounts. Through this concept the

business’s performance can be determined adequately because if the transactions and expenses of
owner and business must be treated separately then the actual financial health can be determined.
Accounting equation:
This is the main concept which must be followed and implied in the books of accounts of
every company. As per this principle, assets must always be equal with the sum of liability and
owner’s equity (Seehausen, 2021). This means that the company must maintain balance between
them. This can be truly reflected in the balance sheet of every company. As per this formula and
equation the assets are on left side and hence must be debited. Likewise, assets also go on left
side of ledger and debited. For example if a company receive cash then cash account must be
debited. In the same way with the presence of liability and equity on right side they always be
credited. They are also credited in ledger accounts too. for example if a company issue share of
stock then it must be credited to equity’s account.
Accrual concept:
As per this concept the revenue must match with the expenses. This means that they must be
recorded in the same accounting period. This concept matches the revenue with the expenses.
This can be understood with an example that if a company make sale of its goods and issue
invoice on 20 march and enable a period of 20 days of recovery. Then as per accrual concept the
revenue must be recognised and recorded in march itself. Like in the case of expenses too they
must be recorded in same accounting period (Budhathoki, 2020). for example, if a company
receives an invoice on 25th march and payment would be made on 5th April then also the
expenses must be recorded in the month of march because invoice of expense received in Mach.
TASK-B
Qualitative characteristics of financial report
Financial report:
These are the formal recording of the financial activities and position of the business.
Financial reports and statements are the reflection of company’s financial health (Authority,
2018). Statements of cash flow, income statement, balance sheet are the major financial
statements.
Qualitative characteristics:

There are many characteristics of financial statements. Reliability is one of the important
characteristics of financial reports which include that the financial statements are free from any
error, they are complete and prudent. This means that as per this characteristic the financial
statement depicts the true financial position of the company so that the investor and concerned
stakeholders must take investment decision. Likewise, financial statement is comparable which
means they possess the comparability quality (Omoolorun and Abilogun, 2017). As per this
characteristic the owner and other shareholders of the company can make analysis of the
company’s performance. This means that with the comparison of financial statement the
loopholes and drawbacks with respect to financial performance would be analysed.
Relevancy is also counted as its characterises which shows that the financial statements are
the relevant mode by which any stakeholder may make its decision with respect to company
(Qualitative Characteristics of Financial Statements, 2021). This feature is the base of decision-
making with respect to the user of financial reports. Similarly, financial reports also carry a
feature of under-stability which includes the presentation of information in under-stable manner.
This also includes the showing of foot notes carrying a detailed information with respect to the
statements. This will make the users to be fully aware about the company’s financial position.
This feature also leads to raise easiness with respect to reading and understanding of the financial
reports with respect to users.
With the presence of these feature with respect to financial statements the concerned users
can make easy understanding with regard to the company’s financial position and performance.
These features will also make the information to be useful for the user because these
characteristics make easy understating of complex statements and along with outside users the
internal users can also able to make analysis of their company’s performance with the presence
of these features.
CONCLUSION
From the above essay it can be conclude that with the consideration of accounting concepts
financial reports are prepared and made. These are the base that will lead the adequate working
and preparation of financial statements. Likewise, with the presence of under-stability, relevance,

reliability and other features of financial reports the users are able to make understating of the
financial position of company.

REFERENCES
Books and Journals
Authority, S.C.P.E.B., 2018. Comprehensive annual financial report. South Carolina State
Documents Depository.
Budhathoki, N.B., 2020. Accounting Concepts.
Chen, A. and Gong, J.J., 2019. Accounting comparability, financial reporting quality, and the
pricing of accruals. Advances in accounting. 45. p.100415.
Omoolorun, A.J. and Abilogun, T.O., 2017. Fraud free financial report: A conceptual
review. International Journal of Academic Research in Accounting, Finance and
Management Sciences. 7(4). pp.83-94.
Seehausen, J., 2021. Accounting Concepts in Company Law. European Company and Financial
Law Review. 18(3). pp.398-427.
Solichah, N. and Fachrurrozie, F., 2019. Effect of managerial ownership, leverage, firm size and
profitability on accounting conservatism. Accounting Analysis Journal. 8(3). pp.151-157.
Online references
Qualitative Characteristics of Financial Statements., 2021. [Online]. Available through <
https://www.mbaknol.com/financial-management/qualitative-characteristics-of-financial-
statements/>
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