Accounting for Business: Concepts and Qualitative Features of Financial Reports

ACCOUNTING FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
a. Five accounting concepts applied in the preparation of financial statements along with the
examples......................................................................................................................................3
b. Qualitative features of financial reports..................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Accounting in business refers to the systematic record of business transaction in a
chronological order, and on the basis of which financial statements are prepared at the year-end
which helps in analyzing and interpreting the financial position and performance of the business.
It helps in tracking the operations of a concern and accordingly, judgments are made regarding
the financial status of the business (Collis, Holt and Hussey, 2017). The financial information so
provided by the financial statements is what the outcome of the accounting function of the
business. The present report is based on the discussion pertaining to the five such accounting
concepts that are applied in the preparation of financial statement and also some of the
qualitative features of financial reports are stated which is making information in it useful for the
users.
MAIN BODY
a. Five accounting concepts applied in the preparation of financial statements along with the
examples
Accounting concepts are some of the principles or rules on the basis of which economic events
are recorded and the accountant must abide by it while preparing the financial statements of a
business. Some of these concepts are as follows:
 Accrual concept: Irrespective of whether cash movement has taken place or not
pertaining to any transaction of either revenue or expense nature, if these have been
recognized or consumed respectively, then the entry must be made in books of accounts
of the business (Honggowati and et.al., 2017). It is necessary to recognize revenues and
expenses in the relevant period from which it is associated by disregarding the timing of
the associated cash flows. For example, when in the month of January, if sales amounting
to 10000 has been made and accordingly invoice has been prepared, then the sale will be
recorded in the books in January itself despite of the payment related to it will be
received in February. Therefore, revenues must be recognized when it has generated.
 Cost concept: According to this concept, assets of the business must be shown in the
books at its cost irrespective of the current market value of these assets. Therefore, if
assets appeared at some value in the financial statements, then it is assumed that this
value is the cost of the particular asset. For example, in the course of getting the best
deal, if the business has acquired machinery for 50000 despite of the market price of it is
60000, then while recording it in the books of accounts, the value 50000 will be used that
the business has actually paid and not 60000 which is the actual value of the machine.
 Going concern concept: According to this concept, the financial statements are prepared
by keeping in mind that the operations of the business will be continued for the
foreseeable future. In other words, there is no intention of the owner or necessities to sell
of the assets of the business and close down it in the near future as such condition arises
when there are financial difficulties in the business (Roslender and Nielsen, 2018). The
reason of applying such assumption is due to the lower value received on the sale of
assets as against its book value and it is necessary to indicate the amount of anticipated