Accounting for Business: Concepts and Qualitative Characteristics

ACCOUNTING FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Accounting concepts used in financial statements......................................................................3
Going concern concept................................................................................................................3
Qualitative characteristics of financial statements reporting......................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
This report gives an illustration of accounting concepts in preparing financial statements.
Instances have been provided for illustrating the concepts of accounting. The characteristics
which are qualitative of financial reports making useful information for financial reports’ users
have also been given.
Accounting concepts used in financial statements
Going concern concept
This concept says that a business will keep going on infinitely and there will be no end to its
operations. There will be no requirement of business to liquefy its assets. The concept is used for
all organizations accounting purposes. This sale type may rise when there are finance difficulties
in running of business and creditors need cash. The concept is prominent because the fixed assets
value being sold is majorly less in comparison to the values recorded , and expectation for selling
off assets may show that anticipation of loss on sale have to be recorded in full. However, as
there doesn’t exists expectation of present need for selling the assets off , the fixed assets’ value
shall continue to show at their recorded values. Example of it can be given in a way that a
government company getting funds in tougher time by the administration keeps regard of
investors and keeps the principle of going concern in motion (Unerman, Bebbington and
O’dwyer, 2018).
Historical cost concept
Asset are represented at balance value that are cost based which are historic. Asset value
measurement method was followed by accountants preferring for methods being based on
current value form. It was although noted, that recording of assets being recorded at current
value can provide a view which is more realistic of finance position which are more of relevance.
For example, real estate value recorded in side of assets of balance sheet (Herath and Albarqi,
2017).

Money measurement concept
Accounting taking each transaction in consideration for money value and dealing in commodities
which can be converted through successful measures in value of money. Although, the
transactions may not be able to come up in the measure and thus get exclusion from report. For
example, stationery purchase has record of monetary value (Unerman, Bebbington and O’dwyer,
2018).
Business entity concept
The business organisation is termed as separate entity than the owner. This is done for correct
accounting purposes. Business owner cannot transact money for personal purposes from the
organisation’s account. Taxes if any, are filed in the name of organisation and not the owner.
This is also because of owners being treated as claimant of firm owned by them with respect to
business environment. Example may be given of a running business like a retail mall. According
to this concept, distinguish concerned to legal matters have to be done which can be present
between the business and owner. For partnerships and sole proprietor, law does no differentiation
between business and the owner. There is a distinction legal between the owners and the
business. These distinctions which are legal are not relevant and the convention of business
entity apply to the business.
Dual aspect
A transaction always has two sides affecting the balance sheet. A good being purchased will
affect both on the credit and debit side. For instance, an asset purchased with cash may reflect
asset increase whereas cash will decline. Loan repay shall occur in liability decrease of loan and
decline in asset such as cash kept at bank (Maama and Appiah, 2019).