Accounting for Business: Concepts and Characteristics of Financial Reports

This report evaluates different accounting concepts used while preparing financial statements and the characteristics of financial reports that assist users in evaluating and using the correct information.

ACCOUNTING FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Accounting concept used while preparing financial statements.................................................3
Various characteristics of financial reports and how they are assistive to users of financial
statements....................................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
The business accounting it being defined as the recording, analysing and interpreting all
the financial statements in order to analyse profitability of business. For the business to be
successful it is essential that accounting of company is managed in proper manner so that
profitability can be assessed. The current study will evaluate the different accounting concepts
which are assistive at time of preparing the financial statements. In the end the report will
evaluate the characteristics of financial reports which assist users in evaluating and using the
correct information.
MAIN BODY
Accounting concept used while preparing financial statements
Accounting concepts are defined as some set of general convention which can be used as
the guidelines for dealing with the different accounting situation and prepare the financial
statements. The major reason for using the different accounting concept is that it provides for
guidance to the finance manager to prepare the statements on basis of these concepts. The
different accounting system useful while preparing the financial statements are as follows-
Money measurement concept- it is a concept which states that only the transaction
which can be recorded within the monetary terms can only be recorded within the books of
accounts. This is particularly because of the reason that the accounting is being undertaken in
order to evaluate the profitability of the company. hence, because of this only the monetary
transactions are being recorded within the books of accounts. For instance, a business is able to
confirm a deal with help of capability of the employees. But as these skills cannot be expressed
in the monetary terms and because of this it will not be recorded within the books of accounts.
Dual aspect concept- this is a concept which states that every business transaction has
dual impact over the financial statements. The major reason behind this fact is that the making of
financial statements is based on the accounting equation. This accounting equation states that
assets of company are always equal to the total of liabilities and shareholder’s equity (Brown and
et.al., 2019).
Assets = Liabilities + Shareholder’s equity

The application of this concept can be seen as, for instance, the business has sold the goods on
credit to the consumer. Then this transaction will have dual impact that is stock will be reduced
and the asset will be increased by the debtors.
Accounting period concept- it states that the business and its operations is being divided
into some specific segment of equal time duration (G'iyosov, 2019). This is generally divided on
the basis of the financial which is generally starting from April and ending at March. The
example of accounting period concept can be either starting from January and ending to
December of starting from April and ending at March.
Cost concept- this is a concept which outlines the fact that all the transactions (generally
assets) are being recorded at the original price. In addition to this, this original cost will be the
basis for all the other subsequent accounting period. Hence, this concept states that assets in
financial statement will be recorded at the cost price and not the present value. For example, the
cost of machine is 250000 in books of account and in market the value is 253000 then it will be
receded as 250000.
Accrual concept- this concept outlines the fact that the transaction is recorded at the time
when it is incurred and not when the settlement of the transaction is being recorded. For making
the financial statements, accrual concept is helpful in making and recording the transaction. For
example, good purchased on credit will be recorded at the time when the goods are purchased
and not when the money is being paid.
Various characteristics of financial reports and how they are assistive to users of financial
statements
For the making of the financial reports it is very important for the company that they
make the reports on basis of some of the characteristics. These characteristics involves the
following-
 Understandabiltiy- for the financial report to be made in effective and efficient manner it
is very important that they are very clear and every concept is being mentioned. This is
necessary for the users as if the financial reports will be easily understandable then they
can effectively take decision (Hsieh, Ma and Novoselov, 2018).
 Comparability- this is also a necessary characteristic to be undertaken at time of making
the financial statements. This is particularly because of the reason that when the
comparability is present within the accounting statements then it makes it easier for

company to analyse its actual position. Hence, users of accounting information can
analyse the actual performance by comparing it with other competitors to take effective
decisions.
 Reliability- this is another characteristic to be present within the financial statement
preparation (Zeff and Dyckman, 2020). The reason underlying this fact is that when the
data will be reliable then this will present a clear outline of the financial position of
company. the users of accounting report need to analyse the reliability of the data as if the
data will not be reliable then this will not provide proper and effective view of the
financial position of the company.
CONCLUSION
The above report evaluated the fact that accounting is process through which the financial
transactions are recorded within the books of accounts and profitability is being assessed. For the
success of the business it is very important that the timely analysis the financial performance is
essential. Hence, the above report evaluated different concept on which financial statement are
being prepared. These concepts included money measurement, going concern and others. In the
end the discussion was undertaken on characteristics of financial reports. It is very essential for
the financial report to have these characteristics to make it useful for the business. these
characteristics involves understandability, reliability, comparability and others.

REFERENCES
Books and Journals
Brown, C., and et.al., 2019. Accounting for business adaptations in economic disruption models.
Journal of Infrastructure Systems, 25(1), p.04019001.
G'iyosov, I.K., 2019. THE THEORICAL FEATURES OF THE ORGANIZATION OF THE
STRATEGIC MANAGEMENT ACCOUNTING IN BUSINESS. Theoretical & Applied
Science, (9), pp.260-266.
Hsieh, C.C., Ma, Z. and Novoselov, K.E., 2018. Accounting conservatism, business strategy, and
ambiguity. Accounting, Organizations and Society, 30, p.1e15.
Zeff, S.A. and Dyckman, T.R., 2020. Accounting and Business Research: the first 50 years,
1970–2019. Accounting and Business Research, 50(4), pp.360-395.