Accounts for Business: Accounting Concepts and Qualitative Characteristics of Financial Reports

ESSAY
ACCOUNTS FOR BUSINESS
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Table of Contents
Introduction......................................................................................................................................3
Accounting concepts used in preparation of Financial statements: ............................................4
Qualitative characteristics of Financial reports:..........................................................................5
Conclusion:......................................................................................................................................6
REFERENCES................................................................................................................................7
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Introduction
Business accounting refers to the structured recording, interpreting and analysing the
financial information by an individual or the organization to keep track of their financial
operations (Färe and Zelenyuk, 2020). This essay will discuss the various accounting concepts
that are used in the preparation of financial statements and useful characteristics of financial
reports.
Accounting concepts used in preparation of Financial statements:
Accounting concepts are the rules and principles that are applied when the economic
events are to be recorded in financial statements (Scagnelli, Di Trana and Venuti, 2018). Money
measurement concept is one of them. This concept implies that the events which occurs only in
financial terms will be recorded in the financial statements. Money expresses variety of resources
held by the businesses however, all the resources cannot be expressed in monetary terms. So they
are removed from the financial reports like balance sheet. For example Mr. A made sale of
$20,000 and collected rent of $5000. The transaction was made in monetary so it was recorded in
books of accounts. The efforts to make sale are qualitative, so they will not be recorded.
Business entity concept explains that the business and the owners are different from each
other. The owners are treated different from their businesses in respect of their investments made
in business. This concept is only applicable to the limited companies and sole trade and
partnership business are exempted from this concept (Islambegović, and Delić, 2019). For
accounting purpose, the legal separations are irrelevant and the business convention entity
applies to all the business. For example: Mr A started a business with the investment of
$1,00,000. He purchased goods of $60,000 and machinery of $30,000 and kept $10,000 in hand.
This $ 1,00,000 is his business capital and liability of business towards him. Then he spent
$5000 for personal use. This spending is personal so it will be treated as drawings. This
represents that business are owner are distinct entities.
Dual Aspect concept states that every transaction in business have two aspects which will
affect the balance sheet. It means that one event will have two effects both of which are needed
to be recorded in the financial statements (S.N., S.K. And M.S.K., 2021). There is two-sided
effect, one is credit and the other is debit. For example if the goods are purchased in cash then
they have two aspects; giving cash and receiving goods. They both will be recorded in the books
of accounts.
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