Six Accounting Concepts Used in the Preparation of Financial Statements

Accounting for Business

Contents
Contents...........................................................................................................................................2
Discuss six accounting concepts used in the preparation of financial statements. Use examples to
illustrate the application of these accounting concepts....................................................................1
REFERENCES................................................................................................................................4

Discuss six accounting concepts used in the preparation of financial
statements. Use examples to illustrate the application of these accounting
concepts.
A few fundamental accounting principles that are very vital to understand and
comprehend are as follows:
Cost- The expense of the firm is reflected in the income accounts by the actual value of
assets and obligations (Bassani and Cattaneo, 2019). The advantage would be that the estimates
in the Report of Monetary Performance are impartial, thus the numbers provided cannot be
disputed. Previous assessment assessments, on the other hand, develop out-of-date over period,
and also most organisations use an asset reassessment method on a routine basis. Informal
property and buildings, for instance, would be worth substantially more today than they were
when purchased 20 years back, requiring frequent re-evaluations.
Accruals- Accruals are the process of offsetting revenue and consumption for goods and
activities throughout duration. The earnings statement details how much money was spent as
well as how much money may be reclaimed. Instead of examining receivables and payables as
they are collected and given, revenue and expenditure accountancy employs this technique. The
following instances show the notion of accruals in bookkeeping:
 Accounts payable
 Accounts receivables
 Protect the company from unforeseeable liabilities.
 The schedules for beginning and ending stocks have been altered.
 Non-current items amortization
 Insolvent obligations have been eliminated.
Going concern- It refers to the possibility that the business represented by the income
statement will continue to function smoothly and successfully in the long run. The income
reports and net working capital are calculated assuming that the business would neither be
severely decreased in capacity nor terminated, and that it would continue to operate in the big
scheme of things sans becoming overly concerned regarding the unforeseen condition
(Mukhametzyanov, Nugaev and Muhametzyanova, 2017). For example, a large, purpose-built
facility has substantial value in a going concern business; nevertheless, if manufacturing were to