Accounting for Business: Concepts and Qualitative Characteristics of Financial Reports

ACCOUNTING FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
(a) accounting concepts used in preparation of financial statements..........................................3
(b) qualitative characteristic of financial report for user ............................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Accounting is a language of recording, analysing, presenting, interpreting business
transaction in terms of money. This report will highlight accounting concepts which are
foundation of preparing and interpreting accounting records. In addition to these concepts, it also
provides general guidelines, assumptions for preparation of financial statement. This report will
also cover qualitative characteristic of financial report and also analyse how it is useful in
decision-making from users point of view.
MAIN BODY
(a) accounting concepts used in preparation of financial statements
Accounting concepts define as rules, principles, assumptions etc. which help in recording
business transactions. These concepts are money measurement concept, business entity, dual
aspect concept, accrual concept etc.
Money measurement concept
Money measurement concept states that all the business transaction should be measured
in terms of money that is in the currency of country. All those business transaction which can not
be expressed in terms of money are not recorded in books of accounts. For example: a business
paid rent of 5000. This expense can be measured in terms of money that is why it is recorded in
the books of accounts.
Business entity concept
Business entity concept highlight that owner and its business are two separate entity. All
the business transactions are recorded separately in the books of firm. It helps in determining true
financial condition of business (Ulupui And et.al., 2020). For instance: owner of a business
purchase refrigerator for its personal use. This transaction is not recorded in the books of firm
because this expense is not related to business activity.
Dual aspect concept
Dual aspect concept is based on double entry system in which all transaction of business
are recorded in two separate accounts. In addition to dual aspect concept, each and every
transaction are recorded on dual effect basis i.e. one is on debit side and other is on credit side.

ACCOUNTING FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
A) Five accounting concepts that has been used in preparation of financial statement and its
example........................................................................................................................................1
B) Qualitative characteristics of financial report that helps in making information more useful
for user of financial report...........................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Business accounting can be term as systematic recording, analysing, interpreting and
presenting all necessary information of the company to interested stakeholders so that they can
take right decision. Thereby, accounting is procedure of keeping the track of various operation
that are perform in the company during the year, so that alternative method that can be decided
to achieve end objectives in more effective manner. This report has included crucial information
related to five accounting concepts that need to be used in preparation of financial statement.
Along with it, the report has discussed about qualitative characteristic of financial report so that
it can be useful for the other users or interested individuals.
MAIN BODY
A) Five accounting concepts that has been used in preparation of financial statement and its
example
Accounting concepts and convention can be define as set of rules and regulation or
principles that are used in preparation of financial statements by the company to effectively
represent necessary information to stakeholders (Thornton, 2018). Therefore, the five different
accounting concept that has to be used in preparation of financial statement by companies can be
illustrated in detailed as follows:
1. Accrual concepts: This is accounting concept that states revenue can be recognised only
when they have been earned, likewise the expenses can be recorded only if they have
been made by the company. Thus, the concept wants to emphasise that the recognised
revenue, profit and losses in amount can be different from actual cash received from
customers or paid to supplier or creditors. Such as the expense and revenue are recorded
in the financial statement in particular accounting year irrespective of whether they have
been paid or received in cash or not in particular accounting period (Watkins, 2020).
For examples: A organisation has sell its goods or products value £ 60000 on 20 march 2020
but the payment has not received by the company till 25 April 2020. So, as per the Accrual
concepts the transaction will be recorded on 31 march 2020, when sales have actually been
made. Likewise, firm has get raw material on 26 March 2020 but made payment on 5 April
2020 so in this case also the expense will be recorded on 31 March 2020.
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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.