Accounting for Business: Concepts and Qualitative Characteristics of Financial Statements

This report discusses the five accounting concepts used in preparation of financial statements with examples and the qualitative characteristics of financial statements that make information useful for users. It also includes the subject Accounting for Business, course code and college/university not mentioned.

ACCOUNTING FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
a) Describing five accounting concept used in preparation of financial statements with
example.......................................................................................................................................1
b) Discussing the qualitative characteristics of financial statements that make information
useful for users............................................................................................................................2
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................5

INTRODUCTION
Accounting for business refers to the procedure of recording, analyzing and interpreting
essential information for the purpose of decision making. In current scenario it is important fro
the company to have effectual pattern of accounting procedure so that better efficiency can be
obtained. The current report will involve the five accounting concepts and qualitative
characteristics of financial statement useful that make the information useful for users.
MAIN BODY
a) Describing five accounting concepts used in preparation of financial statements with example
Accounting concepts are crucial for the purpose of applying appropriate rules &
principles while formulation of financial statement so that relevant & accurate information can
be derived (Brown and et.al., 2019). It includes business entity, going concern, accounting
period , realization and dual aspect are some of the five concepts which are as follow:
Business entity Concepts
It is taken into considerations while formulating financial statement of organization.
According to it, firm and its owners re different entities so that both transactions should not be
recorded as single. For instance- if organization is getting fund from the owner then it is
recorded in the liability side as firm is liable to pay its owner. On the other side if the
company's money is utilized by proprietor for personal utilization then he is obligated to pay
off back. This provides assistance in analyzing accurate cash in & out so that profitability
measurement can be done corrective.
Going concern concept
according to this specific concept of accounting it is stated that business will continue
to carry its operational practices that facilitates preparation of financial statement. On the basis
of it firm charges depreciation on fixed assets, creates trustworthiness among shareholder that
they will get return for longer duration. For example- Company becomes able to treat purchase
of assets as not expense for judging its actual capacity to earn profits in the future. This
accounting concept assist in achieving longer term focus for continuing operational practices.
Accounting period
It is concerned with recording business transaction of specified period so that
profitability of particular duration can be measured. It is a essential ton implement so that
balance sheet & profit and loss account can be prepared for specific period in order to compute
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taxes, profits, financial position, etc. For example- Company prepares its financial statement
for one year so that dividend, tax, etc such obligation can be done in effective pattern by
considering that year's profitability in consideration (Bujaki, Lento and Sayed, 2019.). This
provides guidance in making appropriate comparison of one year's with previous can be done
effectively to make proper evaluation of lacking areas.
Realization Concept
With help of this concept firm becomes able to give emphasis on the business transaction
so that revenue from this should be included only when it is realized. This is associated with
avoiding complexity so that proper legal rights to receive money can be implemented. In case
company has involved in transaction in which sales order has been placed so there will not be
recording of it until the firm has received the payment regarding it.
Duality aspect concept
As per this there is dual effect of each business transactions so that it should be recorded
in two respect account. The purpose behind this practice is to get full picture of company's
processing in turn accurate and relevant information for taking decision can be done. For
instance company has purchased goods on cash. In such case the organization is required to
record this transaction in account of giving cash & receiving goods such as purchase this helps
in balancing financial position so that summarized & better review can be obtained.
b) Discussing the qualitative characteristics of financial statements that make information useful
for users
There are various types of stakeholders who utilizes financial statement in order to take
appropriate decision (Quinn and et.al., 2020). It includes suppliers, vendors, investors,
customer, employees, owner, management, etc. it is important for the company to include
following characteristics:
 The most important feature is that financial information should be relevant so that better
decision-making can be taken into consideration (Amadi and Ejiogu, 2021). In the
current scenario it is essential to give emphasis on fulfilling requirement of users so that
trustworthiness can be established.
 The data provided by company via its financial statement is providing reliable as well
under stable data in turn better clarity regarding firm;'s processing can be exerted. It will
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help in avoiding legal obligation that can harm organization's image and also users
become confident about company's growth.
 Comparability and consistent gives convenience to users of financial statement can easily
make evaluation of firm's performance through making comparison between two or ore
duration to make better judgment (Qualitative characteristics of financial statement.
2020). Consistent nature of giving data provide bottleneck in identifying improvement in
accounting policies, procedures, etc so that users can get updated information regarding
firm practices.
 Materiality permits the company to gets ability to share essential information that are
important for making the provided data is relevant which has not been altered for any
rationalization personal reason. This provides assistance t o users to trust the information
given so that crucial decision regarding investment, lending, etc.
 Timeliness is one of the most important qualitative characteristics assist the users to get
the ability to compare that data. It is concerned with providing information related to
pasty, present and future events so that better decision can be taken by users.
 Verifiability is concerned with the statement that financial information provided is
assured and accurate. This helps the stakeholders to understand that appropriate
procedure has been followed for carrying organizational processing.
These are qualitative characteristics that helps users of financial information to get
proper and reliable data so that their purpose of utilizing these can be fulfilled.
CONCLUSION
From the above report it can be concluded that accounting is crucial for having smooth
functioning. In addition to this, it has involved accounting concepts in formulating financial
statement. The current report has comprises qualitative characteristics useful that makes
financial information useful for users.
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REFERENCES
Books and Journals
Amadi, C. and Ejiogu, A., 2021. Introduction to Financial Accounting. In Financial and
Managerial Aspects in Human Resource Management: A Practical
Guide. Emerald Publishing Limited.
Brown, C. and et.al., 2019. Accounting for business adaptations in economic disruption
models. Journal of Infrastructure Systems, 25(1), p.04019001.
Bujaki, M., Lento, C. and Sayed, N., 2019. Utilizing professional accounting concepts to
understand and respond to academic dishonesty in accounting
programs. Journal of Accounting Education, 47, pp.28-47.
Quinn, M. and et.al., 2020. Accounting for family and business overlaps. Journal of
Management History.
Online
Qualitative characteristics of financial statement. 2020. [Online]. Available through:
<https://ohiostate.pressbooks.pub/drivechange/chapter/chapter-1/>.
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