Accounting Concepts and Qualitative Characteristics of Financial Reports

Accounting for Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Determination of 5 accounting concepts along with their examples, used to prepare financial
statements....................................................................................................................................1
TASK 2............................................................................................................................................3
Describing the qualitative characteristics of financial reports useful to the users. ....................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business accounting refers to the identifying, analyzing, recording, interpreting and
communicating the economic events of a company for preparing financial statements. The study
will have deep insight on five accounting concepts used for preparing financial statement.
Subsequently, the report also overlooks inside the qualitative characteristics required.
TASK 1
Determination of five accounting concepts along with their examples, used to prepare financial
statements.
Accounting period concept:
Every business incorporates for foreseeable period so they also want to know about their
growth. Accounting concept helps the entity to know the performance frequently as accounting is a
continuous process and prepared on interval basis. However, financial period chosen shouldn't be
too long or too short for such purpose (Saputra and Anggiriawan, 2021). Further, at this accounting
date accountants prepare balance sheet, statement of change in equity, income and cash flow, etc.
Therefore, they conclude the financial position and stability of company on interval basis. For
example, Diageo plc wants to know their position in market on regular intervals. Therefore, for this
they can prepare financial statements from 1st January to 31st December or from 1st April to 31st
March according to their will on accounting date mentioned
Matching concept:
In the stated concept, it defines the importance of bringing cost and revenue of same
accounting period together. Therefore, if the financial period of cost and revenue doesn't match they
will not give the appropriate profit for that tenure. Moreover, they follow accrual accounting method
during the time of recording. Hence, the entity will record its cost and revenue as and when actually
incurred rather than the payment is received by them. The entry of transaction of incomes and
expenses are made simultaneously as they follow cause and effect relationship. For example,
Morrison’s at stated date 21st November 2019 purchased inventory in bulk from distributor on
credit, worth of £1000. The payment will be done by the company on 21st May 2020 and the follow
the accounting period of 1st April to 31st March. Therefore, according to this concept the transaction
will be recorded on 21st November 2019 only.
Realization concept:
Realization concept is also known as revenue recognition concept. According to this
1

Accounting for Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Discussing five accounting concepts that used in the preparation of financial statements along
with the examples........................................................................................................................1
Assessing qualitative characteristics of financial reports that make information useful for
financial report users...................................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Business accounting is an action of assembling the information, scrutinizing the data and
recording them in proper format for drafting the financial reports. The present project will
include the accounting concepts used in the preparation of financial statements. Further the study
will outline the various qualitative characteristics of financial reports.
TASK 1
Discussing five accounting concepts that used in the preparation of financial statements along
with the examples
Business entity concept: In accounting this concept implies that owner and entity is
different. The stated line conceptualized, the transactions related to the organization and the
proprietor will be recorded separately (Seehausen, 2021). Moreover, it ought to disclose only
business related information and others will be ignored. Without this concept, the records of
multiple entities would become quite difficult to distinguish the financial or taxable results of a
single business. For example: when the owner of Amcor plc need to withdraw the money for its
personal use from bank, he is not entitled to record this in the books of organization.
Money measurement concept: It is also known as Measurability concept, which states
that company should record only monetary related transactions. Therefore, the data related to
non-monetary nature is ignored irrespective of its urgency. For example: when the employee
has escalated the revenue generation with the interpersonal skills, its art of work will not be
included in the accounts as its of non-monetary nature.
Dual aspect concept: This concept defines that every business transaction will have two
aspects of recording in two different accounts. This concept is derived from the accounting
equations which states that:
Assets = Liabilities + Equity
The accounting equation denotes that total amount of asset should be equal to the part of
liabilities and equity. If management wants to have its financials audited, it must accept this
concept and maintain its records using double-entry accounting. This is the only format that
auditors will accept if they are to issue opinions on financial statements (Wiedenhofer and et.al.,
2019). For example: when Aviva plc is ordering raw material or inventory on credit for further
use, they will show the dual impact. Therefore, on asset side it will have a positive impact as the
inventory is adding and its liability side will also depict increment with same amount.
1

ACCOUNTING
FOR
BUSINESS
l壱

l壱
TABLE OF CONTENTS
lINTRODUCTION...................................................................................................................... 3
lMAIN BODY............................................................................................................................. 3
la) Accounting concepts used in the preparation of financial statements..................................3
lb) Qualitative characteristics of financial reports for users.....................................................4
lCONCLUSION........................................................................................................................... 6
lREFERENCE............................................................................................................................. 7

l壱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.
l壱MAIN BODY
l弐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 owners 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.

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
1

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
1

Accounting for Business
Table of Contents

INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
Define accounting concepts used in preparation of financial statements along with examples................3
Discuss qualitative characteristics of financial reports that make information useful..............................4
CONCLUSION...........................................................................................................................................5
REFERENCES............................................................................................................................................6

INTRODUCTION
The term accounting is procedures for recording of all transactions related to financial
which is pertain to their business organizations (Bui and Fowler, 2019). It must include
summarizing, analyzing and measuring the financial performance of a business organization and
tax collections entity. It can be defined all financial transaction related to the individuals or
business organizations define pre-determined rules and procedures in way of transaction. This
report covers accounting concept which is used to prepare for financial statements and
characteristic of qualitative financial report that makes information useful.
MAIN BODY
Define accounting concepts used in preparation of financial statements along with examples
Accounting concepts are just assumptions or conditions which accounting financial
records and statement should be used and accounting concepts are a set of general gathering
which can be used as guidelines rules and regulations will determine or dealing with accounting
situations. It should be presented in a very significantly manner which is to be easily
understandable for the users and it is relevant information should be provided to their user.
Accounting concepts are used in accountancy for various rules and regulations and recording
their preparation of financial statement that all accountants stand. Key accounting concepts are
used to prepare financial statements which are described below:
Money measurement concept: This concept recognizes that they normally deal with
various items that are capable of being expressed in terms of their money or in monetary terms. It
gives the best advantage that it is useful to express wide of broad variety of a business
organizations (Chernyshova and Simakov, 2020). These concepts are measured in terms of
money so it can be concluded in balance sheet. For example, sincerity, loyalty and honesty of
particular workers are recorded in books of accounts but this cannot be measured in terms of
money and monetary terms.

Accounting for Business

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
(a) Discuss five accounting concepts used in the preparation of financial statements............................3
(b) Discuss the qualitative characteristics of financial reports that make information useful to users. . .5
REFERENCES................................................................................................................................................7