Accounting for Business: Concepts and Qualitative Characteristics of Financial Reports

ACCOUNTING FOR
BUSINESS
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
(a) Accounting concepts that use in the preparation of financial statements..............................3
(b) Qualitative characteristic of financial reports for users........................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

·INTRODUCTION
Accounting refers to language of the business in which all the business transactions are
recorded, summarized, analysed in term of money in books of accounts. This report will cover
accounting concepts which are used as assumption, guidelines for recording financial
transaction. These concepts are dual aspect concept, cost concept, realization concept, accrual
concept etc. which provide faithful information to user (Birt, Muthusamy and Bir, 2017).
Further, this report will analysis qualitative characteristic or importance of financial report from
users point of view. Internal and external user of the company can take decision on the basis
financial report.
·MAIN BODY
·(a) Accounting concepts that use in the preparation of financial statements
Accounting concepts are principles, rules, assumptions on which all the business transaction are
recorded.
Dual aspect concept
Double entry book keeping is the foundation of dual aspect concept and whole
accounting is based on this concept. This concept states that every business transaction has dual
aspect one is on debit side and other is on credit side. Therefore, each business transaction must
record at two places in books of accounts. For example: a business purchases machinery by
cheque. This transaction has dual aspect one is on debit side as assets increase and other is on
credit side where bank balance reduces.
Realization concept
Realisation concept refers to revenue should be recorded only when it has been earned
irrespective of payment received or not. This concept is derived from revenue recognition
principles. Majorly this concept is applied when goods and services are delivered on advance
cash basis or credit basis (Christensen, Newberry and Potter, 2019). So in simple words
company records profit only after it is actually earned. For instance: a company get an advance
payment of 6000 p.a. for its future services. So company does not realize 6000 as revenue until it
has performed services. Company records 6000 as liability at initial. Further, As services will be
delivered on monthly basis as amount of 500 per month will transfer to revenue account.