Accounting Concepts and Qualitative Characteristics of Financial Reports

This report discusses the accounting concepts used in financial statements preparation, including the business entity concept, going concern concept, money measurement concept, cost concept, and accounting period concept. It also outlines the qualitative characteristics of financial reports, such as relevance, understandability, comparability, and reliability, and how they help users make informed decisions. The report concludes by emphasizing the importance of accounting in analyzing business performance and financial position.

ACCOUNTING
FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
la) Accounting concepts used in the preparation of financial statements...................................3
lb) Qualitative characteristics of financial reports for users.......................................................4
CONCLUSION................................................................................................................................6
REFERENCE...................................................................................................................................7

INTRODUCTION
Accounting is the language for the business through which business transaction are
recorded in terms of money for the final user of the organization. The current report will
highlight business concepts, these are rules, assumptions, principles that help in recording
financial transaction. Users can get true and fair position through financial statements if these are
prepared by taking base of this accounting concept. Further, at the end this report will outline the
qualitative characteristic of financial report and how this financial report will be helpful for the
ultimate user of the business.
MAIN BODY
a) Accounting concepts used in the preparation of financial statements
Here are five accounting concepts which use in preparation of financial statements.
Business entity concept
Business entity concept is also called as separate entity which means business and its
owners are treated as separate entity. According to this concept business transaction are recorded
separately from owner’s personal transaction and this will lead to analysis the accurate
performance of business (Alvaredo and et.al., 2018). In addition to this also help in showing
accurate financial position. For example:
A business man took loan from bank for personal use this transaction is not related to business
are not recorded in books of accounts due to business is following separate entity concept.
Going concern concept
All financial accounts are made on going concern concept where the assumption will be
taken that business will run for long and continuous for indefinite period. This also ensure that
company is financially stable and has enough fund to meet obligation. If company is not
following this principle than it need to record all transaction and information on realization basis
in financial statements. For example:
A person who started a business and at the end of the year financial statements are prepared in
which profit has generated. That profit of the business transaction transfer to the next financial
year.

Money measurement concept
All those transactions which are measured in terms of monetary value that is in currency
of the country, are recorded in the books of accounts. This concept guide what to record and
what not to record. Those transactions which can't be measured in terms of money, are not
recorded in books of accounts.
For example: company A has skilled employee with honesty and high morale and company B
has unskilled workforce but this skill can't be measure in terms of money so this will not record
in books of accounts.
Cost concept
Assets are recorded on acquisition price or on the cost price but not on market value or
realization value (Aviantara, 2021). This concept is also called as historical cost method. Assets
are recorded on retaliation value when business is at the stage of winding up.
For example:
A business purchase land in 2018 at price of 100000. But in year of 2020 the cost of the land
increased by 10, 00000. This transaction will be recorded on historical price due to cost concept
that is 100000.
Accounting period concept
All the transaction are recorded on periodical basis so that profit and loss can be
ascertained during a specific period (Stankevych, 2017). This period can be quarterly, half-
yearly, yearly, calendar year, financial year etc.
For example:
If business man is preparing profit and loss on yearly basis which means all the transaction
which are related to this year either it is expenses or income that are related to business activity
and measure in terms of money are recorded in the books of accounts.
b) Qualitative characteristics of financial reports for users
Relevance

Financial statements should include all this information which are relevant for business
user to take decision (Preyer, 2020). Through this statement user can evaluate past, present and
future of the company and also this help in comparative analysis from company to company.
For example:
Business took loan for buying machinery this transaction need to record in books of accounts
because this will help user for taking decision regarding investments, optimum utilization of
assets, growth etc.
Understandability
All transactions and informations which are recorded in financial report, are free from
jargon and complexity for the user to understand. This happens because company use foot note
or supporting point which help the user to understand every transaction in detail (Agussalim,
Amin and Nuzula, 2018). If financial information are easily understandable by average user
means this is the desirable statement.
For example: business recorded the transaction where assets are valued at 50000. In this
transaction there is no other information given which resultant in occurring of technical jargon.
Since, this is not clear through above sentence that this is a current asset or fixed assets amount.
Comparability
Comparability means financial statements need to be prepared by using same accounting
standard and policies from period to period. This comparability study help the user to compare
current financial report to past performance or with competitors.
For example:
A company has recorded assets by applying depreciation from written down method but due to
some reason company has changed depreciation method to straight line (Richter, 2021). This
changed need to be shown in foot note of financial statements for comparability analysis from
past performance.
Reliability
The information which are provided in financial statements, are reliable and free from
error, biases. Financial statement which is prepared by using trustworthy sources, this will help
the user for understanding true and fair picture of the company.

For example: a company is following cost concept where all transactions recorded on cost basis
but due to information taken from unreliable source, assets are recorded at market value. This
will put wrong impact on decision taken by user.
CONCLUSION
From the above analysis it has been concluded that accounting is important for analysis
performance, liquidity, solvency of the business. True and fair financial position can be known
by applying financial concepts like money measurement concept, separate legal entity, going
concern etc. these concepts are foundation of recording all business transaction and guide how to
interpret. In addition to this report analysed the qualitative characteristic of preparing financial
report. Further, studied about how financial reports are useful for ultimate users like shareholder,
investor, management etc. and how this report will help in decision-making.

REFERENCE
Books and Journals
Agussalim, A., Amin, F. and Nuzula, N. F., 2018. Application of Government Internal Control
System (SPIP) in Implementation of Income and Expenditure Buget (APBD) to Improve
Quality of Financial Report of Local Government of Pangkajene and Islands Regency
(Pangkep). Wacana Journal of Social and Humanity Studies. 21(2).
Alvaredo, F. and et.al., 2018. Distributional national accounts.
Aviantara, R., 2021. The Association Between Fraud Hexagon and Government’s Fraudulent
Financial Report. Asia Pacific Fraud Journal. 6(1). pp.26-42.
Preyer, G., 2020. Concepts of Consciousness and Representation. Merits and Critiques of Higher
and Same Order Monitoring Accounts in the Theories of the Mental. Studies in the History
of Philosophy. 11(1). pp.95-121.
Richter, J., 2021. The COVID-19 Outbreak and National Accounts-Some Remarks on Selected
Aspects. Austrian Journal of Statistics. 50(4). pp.91-102.
Stankevych, О. І., 2017. Financial report as a hypertext. Англістика та американістика. (14).
pp.46-50.
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