Importance of Accounting Concepts in Business

The assignment emphasizes the significance of accounting concepts in business, including accrual and conservatism concepts. It explains how these concepts enable companies to represent their actual position accurately and make informed decisions. The document also highlights the importance of financial information for investors and the role of professional accountants in preparing effective strategies.

Advanced financial
accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Explain the Concepts of accounting........................................................................................1
2. Conceptual framework and measurement in accounting.........................................................3
3. Fundamental qualitative characteristic for the understanding of financial statement..............5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Advance financial accounting is the method which include the various functions such as
accounting operations, merger & acquisition of public holding company, currency operations and
build financial statement for the use of future decision making process (Rufino, 2015). With the
help of advanced financial accounting, organization can identify the internal & external
performance and provide these information to the stakeholders. It will help the business to
increase their potential investors as well as customer base. Elders Limited company choose for
the better understanding of this concepts. It is Australian based Agribusiness organization
founded in 1839, it provide various products which help the farmer to increase their productivity
such as livestock, farm supplier, grain and other financial services. This report include the
accounting concepts of the selected company and the understanding of relevancy & Faithfulness
of financial statements.
MAIN BODY
1. Explain the Concepts of accounting
In the organization, management apply various type of accounting concepts which is
essentially required due to producing different financial statements. These financial statements
help the business to represent their performance to their stakeholders which attract the consumers
in order to increase their demand in the market. Elders limited apply accounting concepts at the
time of building financial statement which further help the stakeholders to identify and analyse
their decision weather they have to invest or not. Their are various accounting concepts which is
discussed below:
Accrual concepts: It is the fundamental principle of the accounting concepts where
accountant have to record the revenue when it earned not when they actually receive the amount
in cash (Accrual Concept, 2019). Along with this, they also record the expenses when they
incurred not when they are paid in cash. According to the Generally Accepted Accounting
Principle (GAAP), companies have to prepare their financial statements on accrual basis only.
By following this concepts, company required to record all the expenses or revenue in the same
period when they occur not when they are received or paid. As per annual report of the Elders
limited it has been observed that, company apply accrual concept to record their transaction
which help the business to accurately record and prepare financial statement in well manner. It
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include expenditure, profit on sale of assets, revenue etc. This concept provide clear guidelines
regarding treatment of this transactions. Company mention the trade & other receivable and
current tax payable in their financial statement and will be based on the accrual concepts.
Conservatism: It is general principle which is used for the identification of expenses or
liability of the company rather then anticipating profit (Conservatism Concept, 2019). With the
help of this concepts, accounting professional can undervalue the revenue or assets of the
company and it will be done due to ignoring loss which can occur in the future. So basically, as
per this concept company have to anticipate the loss and recorded in their books of accounts but
not record the anticipated profit. Elders limited company use this concept and record all the
future losses but not future profit in order to maintain the financial position of the business.
Relevant items are recorded in the income statement which reduce the possible losses.
Economic entity concept: It is a accounting principle which stated that, business have to
separate their finances from partners, owners, shareholders and other people. It is one of the best
core fundamental accounting standard which is followed by the organization in order to maintain
their finance without any disputes. Organization have to ensure that, their personal income and
expenditure not recorded in the company's accounts. If it is happen and owner include their
expenses in the companies accounts then it will negatively affect the business and their
shareholder's decision. Due to this reason, organization not able to show their actual position of
the business. As per the annual report of the Elders limited, owner;s personal income and
expensed will not consider in the books of accounts. Company separate their income or expenses
from the owners accounts in order to maintain accurate financial position of the Elders Limited.
Materiality: This concept ignorer the accounting standard if net impact provide the little
bit impact on the financial statement where accounting users not mislead the information.
According to the GAAP principle, accounting standards not implement if they are immaterial.
For example: if any transaction can affect the decision of investors then it should be recorded as
per the accounting standard and it will be obligatory by the legal authority. Elders Limited
company follow this concepts and prepare their financial statement which help the potential
investors to take decision regarding their further investment. As per company's annual report it
has been observed that, if any transaction which affect the earnings then it will be recorded in the
financial statement in order to meet the requirement (Annual Report of Elders Limited, 2018).
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Going concern: This concept used for the continuation of business for the longer period
and try to run business operation for the future. According to this concept, it has been assumed
that current or next year company will be execute their plans, use existing assets and then meet
their financial obligation. Company have to ensure that their business run in the future so they
build their strategy or plans according to it. As per annual report of the Elders Limited company,
it has been observed that company follow the going concern concept which help the management
to build their strategy according to it and then implement for the future functioning. Company
show the depreciation as an expenses to the life of assets which represented that business run
their operational activity in the future.
Above mention concepts are followed by the Elders Limited company in order to run
their business in effective way or increase the efficiency of organization. These concepts help the
business to run their operational functions and then produce financial statements in order to
provide the actual or accurate results (Weygandt, Kimmel and Kieso, 2015). It will help the
investors to take their decision related to the investments. Through following these accounting
concepts it become easy for the manager to prepare their accounts for the further functioning and
for building strategy for the future.
2. Conceptual framework and measurement in accounting
Conceptual framework: It is a analytical tool which provide the proper framework
which helps in preparing financial statement and it will be amended or incorporated with
conceptual framework for the financial reporting which is issued by the International Accounting
Standard Board (IASB). Company applied themselves in different categories where hey lay and
follow the direction according to it (Martins, 2017). Every organization have to produce financial
statement so Elders Limited build their final accounts and other statements as per the guidelines
of AASB ( Australian Accounting Standard Board ) or IFRS ( International Financial Reporting
Standard ). It helps the organization to attract foreign investment through representing their
actual position of the business. It will help in increasing their efficiency or effectiveness that will
further provide benefits in order to increase their productivity or profitability. Below mention
frameworks are followed by the Elders Limited:
IFRS 1: This framework is for those organization which adopted for the first time and it
provide clear guidance related to the formation of their final accounts as per the accounting
standard.
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IFRS 5: It is for Non current assets held for sale discontinue Operations because those
assets who held for the sale are not depreciated and it will be clearly mentioned in the financial
statement which provide the accurate position of the business.
IFRS 7: This reporting standard for the disclosure of accounts which help the
organization to disclose their financial information to attract more investors and provide their
actual information to it's existing users (Segal, 2016).
IFRS 10: It is used for the consolidated financial statement which include the exposure
or rights to variable returns and include the ability which provide the effective returns. It is
issued on may 2011 and it will be disclosed in the annual report of the company.
Measurement in Accounting:
There are various measurement which help the organization to resolve their issues which
occur in the organization and it is faced by the Elders Limited and it will be discussed below:
Compilation with accounting principles: Most of the organisation face the issues
related to the compliances of accounting principle and it will be happen at the time of recording
business transaction. Issue generate due to modification in accounting principle and it will affect
the accuracy of different accounts and accountability of the manager. Along with this, it impact
the internal as well as external users of the financial statements. For example: Accounting
professional of the Elders Limited is not aware about the changes in the principle which create
issue after preparing all the accounts and it will affect the business. So, in order to resolve this
issue company adopt the IFRS 1 and formulate the guidance as per their rules and then
implement the guideline which is required by the organization.
Reporting on financial forecasts and projections: Generally organization face the
issues related to the forecasting and projection assets value. This issue occur in the organization
it will affect the company and management not able to take measure the actual value of assets.
This issue faced by the Elders Limited company where some of the elements are recorded in the
balance sheet such as depreciation which is deducted fro the assets. Accountant professionals
will be adopt IFRS 13 because it is for measurement of fair value of assets. With the help of this
financial reporting framework, company can analyse forecasting value and done various
projections (Watson, 2015).
Above mention issues faced by the Elders Limited company at the time of measuring
their financial statement. So company follow the different IFRS which provide clear direction or
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guidelines to resolve this issues with the help of conceptual framework. Management team need
to ensure that company adopt various accounting principles and standards in order to produce
accurate financial statement which provide the actual financial position of the business. Which
attract the potential investors or consumers to show their interest and become part of the Elders
Limited organization.
3. Fundamental qualitative characteristic for the understanding of financial statement
Qualitative characteristics is important for the organization because it help the individual
to understand the information related to the organization which provide faithfulness and relevant
data (Kosan, 2014). It will help consumers or investors take effective decision which further
beneficial for the business in order to increase their productivity or profitability. With the help of
financial information, company can analyse the performance of the stakeholders and it further
help the manager to develop effective strategy regarding their investment, supplying goods,
purchase raw material and other related activities. Both characteristics will be discussed below:
Representational Faithfulness: Every organization need to disclose their financial
information in the form of different financial statement which include the faithful data which
help the stakeholders to take their essential decision as per the representation of their financial
information. All the relevant information recorded in the books of accounts and then analyse the
final accounts. As per the annual report of the Elders Limited, it has been observed that every
information which is listed in the statement of profit & loss account is faithful and balance sheet
also shows the correct assets and liability of the company. All the information in the financial
statement is correct and it free from errors, so potential investors or top management can build
effective strategy according to it as well as take decision for the future.
Relevance: Organization required to provide relevant information which helps in
building final accounts of the the company. It represent the actual position of the business along
with their performance in the market. It further helps the organization or management to build
effective strategy in order to achieve their business goals & objectives. Relevant information
helps in forecasting also and make them able to achieve productivity or profitability. If final
accounts does not provide relevance information then it will create issues which affect the
productivity, sale of profit margin of the company (Jalloh, 2014). In addition, it generate other
issues too which affect the organization and decision making process too. According to the
annual report of the Elders Limited company, it is observed that, all the information is relevant
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which help the professional accountant to maintain their records in order to provide accurate
information which represent actual position of the business. With the help of accurate
information business can attract more consumers and potential investor and increase their interest
in order to invest in the organization (Kraft, 2014). It further helps in increasing productivity,
profit margin, liquidity, sale etc. To match the economic of scale, company required to provide
accurate information and it is important characteristic which required to be focused by the
accountants in order to achieve their business goals & objectives. It further increase the
profitability or productivity of the company.
As per the financial statement of the company such as income statement or balance sheet
both provide the relevance and faithful information which is used by the manager of the
company for the further functioning (Georgescu, Păvăloaia and Robu, 2014). These
characteristics represent that company perform in well manner and have ability to grow in the
market. Other features required to be analyse by the professional accountant which help the
company to achieve their long term goals & objectives. Along with this, it further helps in
increasing their productivity or profitability.
CONCLUSION
From the above discussion, it has been concluded that accounting concepts provide the
proper structure to complete their task in order to achieve their organizational gaols & objectives.
Company follow the various concepts which help the business to represent their actual position
and make them able to take effective decision. With the help of final accounts, professional
accountant able to build effective strategy which furtherer helps in decision making process. In
addition, company follow the various conceptual framework which provide clear guidelines and
make them able to prepare their accounts in effective way. Along with this, these financial
information also help the investors to take their decision in order to done their investment in this
organization or not.
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REFERENCES
Books & Journals
Rufino, H., 2015. Core Competencies for Accountants of BS Accountancy Students of Tarlac
State University: Input to Accounting Education. Review of Integrative Business and
Economics Research. 5(4). pp.16-28.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & managerial accounting.
John Wiley & Sons.
Segal, S., 2016. Accounting frauds–review of advanced technologies to detect and prevent
frauds. Economics and Business Review. 2(4). pp.45-64.
Kosan, L., 2014. Accounting for marketing: Marketing performance through financial
results. International Review of Management and Marketing. 4(4). pp.276-283.
Jalloh, M., 2014. Financial sector reforms and economic growth: the West African
experience. Afro-Asian Journal of Finance and Accounting. 4(2). pp.163-181.
Kraft, P., 2014. Rating agency adjustments to GAAP financial statements and their effect on
ratings and credit spreads. The Accounting Review. 90(2). pp.641-674.
Georgescu, I., Păvăloaia, L. and Robu, I. B., 2014. Fair value accounting and market reaction:
evidence from Romanian listed companies. Procedia-Social and Behavioral Sciences.
143. pp.827-831.
Watson, L., 2015. Corporate social responsibility research in accounting. Journal of Accounting
Literature. 34. pp.1-16.
Martins, A. F., 2017. Accounting information and its impact in transfer pricing tax compliance: a
Portuguese view. EuroMed Journal of Business. 12(2). pp.207-220.
Online
Annual Report of Elders Limited. 2018. [Online]. Available Through:
<https://investors.elderslimited.com/FormBuilder/_Resource/_module/
hmGBziN_d0SZypG-M7oDFg/docs/annual-reports/2018-Annual-Report.pdf>
Accrual Concept. 2019. [Online]. Available Through:
<https://xplaind.com/741603/accrual>
Conservatism Concept. 2019. [Online]. Available Through:
<https://www.accountingtools.com/articles/2017/5/14/the-conservatism-principle>
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