Accounting Concepts and Qualitative Characteristics of Financial Reports

This report covers the five accounting concepts used in preparing financial statements and the qualitative characteristics of financial reports. It includes examples and insights. The report is useful for business students and professionals.

Project for business

Table of Contents
Project for business.........................................................................................................................1
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Five accounting concepts used in preparing financial statements using examples.....................3
Qualitative characteristics of financial reports............................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The accounting is used for keeping records of various financial transaction concerned with
individuality and entity. The accounting concepts are called as general conversions that is utilise
as a guideline in dealing accounting situation. The auditors certify financial statement of business
while preparing with accrual concept (Boyd, 2020). The report aims to covers aspect of five
accounting concepts used in preparing financial statements using examples. It also includes
qualitative characteristics of financial reports that is useful in the financial reports.
MAIN BODY
Five accounting concepts used in preparing financial statements using examples
The accounting concepts is effective conventions which is adopted in the rules of
accountancy as well as applied principles while recording events of economic in order to prepare
financial statements. The fundamental accounting concept regarding preparation of financial
statement is mention bellow-
 Money measurement concept- In general accounting deals with those respective items
which are highly capable towards being expressed in form of monetary. Money consists
of useful advantage where denominator has to express wide range resources acquire by
business. Whereas not each type of resources is able to measure monetary terms so it will
be eliminated from the balance sheet. The money measurement restricts scope of
accounting financial statement.
 Historical cost concept- The assets that is shown in balance reflect the value that is
associated with historic cost (acquisition cost) The methodology of assets measuring
implemented by the accountant in preferring method based on current value (Zeshan,
2021). Example- Most of the commentators recognise particular convection difficult in
supporting outdated historical cost which aid assessment existing financial position It will
record value in more realistic view for relevant financial position. This system measure
current values that will present number of problem.

 Going concern cost- The going concern cost capture business towards continuous
operations regarding foreseeable future. There is a no intention or requirement to sell
assets of business. The convention is essential for business in valuing fixed assets ion
order to sale low relation with recorded value. Example- The expectation of selling assets
towards anticipated loss on sale that is fully recorded. This concept delivers proper
support regarding historic cost concept that consist normal circumstances.
 Business entity concept- For the purpose of accounting, the owner of the business will
be treated separate and distinct. The owner is being claimants in against of business
regarding business investment (Braun, 2017). The concept of business entity covers
distinguished towards legal position among business and owners. Example- For
partnership and sole proprietorship, law does not make difference regarding limited
companies. It is clearly legal distinctions which is irrelevant for business entity with
application of business convention applies.
 Dual aspect concept- Each transaction combines of two different aspects that will impact
overall balance sheet. Example- Purchasing car will result in increasing assets and
reducing cash. The repayment of loan will decrease the liability and assets.
Qualitative characteristics of financial reports
The qualitative characteristics is referring as more influencing attributes that is essential in
making financial information which is very useful to the users. For the purpose of analytical,
qualitative characteristics will be differentiated in terms of fundamental and improving
qualitative characteristics (Deegan, 2017). The request of accounting information regarding
lenders, investors, creditors and so on to develop fundamental features of qualitative in desirable

accounting information. Two out of six qualitative characteristics are most fundamental and rest
enhancing one.
Fundamental qualitative characteristics- The qualitative characteristics regarding
accounting information must included information that is most useful in decision making.
 Relevance-This is most useful for providing information for making financial
decision making. The accounting information must be relevant possess
confirmatory value, predictive value (Diseko, 2018). That is why accounting
information is more relevant so that it can deliver useful information regarding
previous actions to deal in near future outcomes. Example- organisation experience
strong quarter in order present towards creditors in decision making process
towards extend of credit available to company.
 Representation faithfulness- The representational faithfulness consists of
reliability towards the extent of accurate information that reflects organisation
resources, transaction, obligatory etc. to enhance pictorial depiction of represent
faithful information of accounting information. This must involve complete,
neutral, free from errors.
Enhancing qualitative characteristics- The qualitative characteristic related with
accounting information that impact useful information-
 Verifiability- The Verifiability is referring as extent to reproductive information
that is in provided in same data with assumptions. Example- Company own
instrument value $1000 and said accountant to purchased cost, depreciation, useful
life, salvage value (Gusc, 2017). It is cable to reproduce the exact results, If
company fail then they cannot consider it as verifiable.
 Timeliness- The timeliness is so quick towards information that is available
towards users for accounting information. The less time is less useful for making
decision making. It matters a lot for accounting information as it competes with
different information. Example- The organisation issues regarding financial
statements within year during the accounting period, the users combine financial
statement that is more difficult to determine company present situation.

 Understandability-The Understanding involve high degree so that information can
be understand in more significant manner. In present society, the annual corporate
report reduces excess pages regarding importance qualitative information. The
information is more understandable the financial statement users in higher desirable
form. This is most common for company to performing poor and use jargons that
impact annual report in disguise underperformance.
 Comparability- The comparability is effective degree regarding accounting
standards as well as policies with consistency applied from on period to another.
The financial statement is much comparable while consistent accounting standards
during each accounting year. It ensure insightful conclusion that reflects trends and
company performance over the time.
CONCLUSION
From the above report it has been concluded that there is a great significance of accounting
concept as it improves quality of financial reports and statement. It included understandability,
relevance, reliability and compare financial statements. The financial reports include qualitative
characteristics which is very important as it deliver well informed information of company that
helps in decision making of investor. That is why this is useful for both company and investor
that cover detail financial information.

REFERENCES
Book and journal;
Boyd, J. and Pitre, R., 2020. Creating relevance in managerial accounting. Journal of Education
for Business, 95(5), pp.331-334.
Braun, K.W., 2017. Excel-based active learning: use Excel projects to engage students with
management accounting topics. Strategic Finance, 99(2), pp.42-50.
Deegan, C., 2017. Twenty five years of social and environmental accounting research within
Critical Perspectives of Accounting: Hits, misses and ways forward. Critical Perspectives on
Accounting, 43, pp.65-87.
Diseko, R. and Modiba, W., 2018, June. Authentic online assessment in assessing basic
accounting content knowledge of Grade 10 learners. In EdMedia+ Innovate Learning (pp. 2177-
2182). Association for the Advancement of Computing in Education (AACE).
Gusc, J. and van Veen-Dirks, P., 2017.
Gusc, J. and van Veen-Dirks, P., 2017. Accounting for sustainability: an active learning
assignment. International Journal of Sustainability in Higher Education.
Zeshan, A. and Lodhi, A.S., 2021. Investigating Business Students’ Perceptions about Strategies
Used For Teaching an Introductory Accounting Course. Ilkogretim Online, 20(2).