Accounting for Business: Concepts and Qualitative Characteristics of Financial Reports

Accounting For Business

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK ..............................................................................................................................................3
A) Accounting concept which is used for prepare the financial statements...............................3
B) Qualitative characteristics of financial reports.......................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The term accounting is explained as the process of recording financial transactions of an
organisation for analysing, summarizing and reporting all transactions to monitor and control tax
collection entities. Each organisation formulate an individual department for manage all
accounting transactions in an organised manner. Corporate financial statement considered as
written records which convey monetary transactions and business activities (Arad and et. al.,
2019). The selected organisation for this report is TESCO which perform business at global level
so this is important for management to record and view all financial transactions for analyse
overall profits of business. Moreover, this report highlights on different concepts of financial
statements and also on the qualitative characteristics of financial-reports which make information
more useful.
TASK
A) Accounting concept which is used for prepare the financial statements
Accounting refers to summarize and demonstrate all financial information which is used
for prepare the financial information that results to formulate appropriate business transactions.
This also reports about the operating profit and value of business to stakeholders some of the
financial concept for formulate financial statements are mention as follow:
 Accrual concept- Financial-accounting is based on the accrual basis because this is
highly accepted by the management. In the context of TESCO, accrual as well as cash

ACCOUNTING FOR BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASKS.............................................................................................................................................1
a) Five accounting concepts used in the preparation of the financial statements illustrated with
the relevant example....................................................................................................................1
b) Qualitative characteristics of financial reports making the information more useful for the
users.............................................................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Financial accounting in the business is one of the most significant function that shall be
assisting in the reporting of the financial performance and the profitability of the business. This
information is useful for the various internal and the external users of the business. The current
project report shall be depicting the various accounting concepts that are to be followed for the
accurate results. Apart from that it shall be representing the qualitative characteristics of the
financial reports.
TASKS
a) Five accounting concepts used in the preparation of the financial statements illustrated with
the relevant example
Business entity concept
This concept states that the owner and the business are two separate persons and
independent entities and the routine transactions shall be in the name of the business. This is the
major reason that if the owner contributes the capital it is booked as the liability of the business
and if they withdraw the amount they are not business expenses rather are considered drawings
and deducted from capital. Also, all the assets are purchased in the name of the company.
Example:- If the company purchases the furniture and the plant and machinery then these assets
are purchased in the name of company and belongs to the business and not the owner.
Dual aspect concept
This concept of accounting suggests that every transaction of the entity has the dual effect
one is the debit and the other is the credit (Wiedenhofer and et.al., 2019). The recording in the
books of accounts has to be done considering the dual aspect of all the transactions completing
the double entry. This shall also satisfy the fundamental accounting equation that is Assets =
Liabilities + Capital and hence match both the sides of the balance sheet of the company.
Example:- Suppose a transaction is undertaken which is the goods are purchased for cash in the
company. In such case since cash is received against the sales so the cash account shall be
debited and on the contrary the sales of goods account shall be credited.
Going concern concept
The concept shall be specifying that the business shall be continuing for the foreseeable
future of indefinite period and the assumption is that the business shall not be dissolving in the
near future of the company. This means that the activities are to be carried out on a continuous
1

Accounting for Business

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
(a) Discuss five accounting concepts used in the preparation of financial statements............................3
(b) Discuss the qualitative characteristics of financial reports that make information useful to users. . .4
REFERENCES................................................................................................................................................6

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).

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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ACCOUNTING FOR
BUSINESS

INTRODUCTION
Accounting is considered as one of the most important function performed in every
business unit which deals with the recording, classifying, summarizing and presentation of
accounting information that is, financial transactions that take place in a day to day business
operations (Hanley, 2020). The financial transactions are presented in such a way which makes it
easier for the stakeholders of the business to understand the affairs of the business in one go. The
present report focus on such accounting concepts on the basis of which financial transactions are
recorded and accordingly financial statements are prepared. These accounting concepts are
considered as the basis of accounting. In the second task of the report, various qualitative
characteristics of financial reports will be highlighted due to which information contained in it
become useful for its end users.
MAIN BODY
a) Five accounting concepts useful in preparing financial statements and example of its
application in business
Matching concept
The concept provided that all the expenses and revenues incurred for a particular transaction
must be included in the accounting period from which it is related to. Whether pay has been
made or not of expenses and revenue whether received or not must be included in the financial
statements prepared for that relevant accounting period (Ugwoke, Olulowo and Adedayo, 2020).
The purpose of such inclusion is that it will provide the realistic of view of the business financial
performance and position at the end of any accounting period.
For example, in the month of September if the sales of £11000 has been generated and in respect
of which £ 1000 commission has been accrued to be paid in October. So according to the
matching concept, in this case the sales amounting to £11000 along with the matching
commission of £1000 must be accounted for in the month of September.
Dual aspect concept
According to this concept, each transaction taking place in the business have dual aspects and it
is must to record both the aspect separately into the books of account. Therefore, this concept
proves the basic accounting equation that is, Assets = Liabilities + Capital and accordingly for
every debit entry there will be an opposite credit entry equivalent to the amount of the former
(Brinca, Costa-Filho and Loria, 2020). When this equation has appropriately been followed
throughout the accounting process, then only the trial balance and balance sheet of a concern will
have matching debit and credit balance and thus balanced.
For example, when the owner introduces capital into the business in the form of cash, then this
transaction gives rise to dual aspect that is, the debit of cash account as it has increased with the
inflow of cash and a simultaneous credit of capital account as the business’s liability has
increased.
Realization concept