LSC UoS BA Business: Application of Accounting Concepts in UK

This essay provides a detailed discussion of six key accounting concepts used in the preparation of financial statements, as required by the International Accounting Standards Board (IASB) in the UK. The concepts explored include the going concern concept, business entity concept, dual aspect c...Read More

Accounting concepts

TABLE OF CONTENTS
.........................................................................................................................................................1
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Describing six accounting concepts............................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting concepts helps any business in guiding the organization in most efficient
manner. Furthermore, various accounting concepts such as the going concern, money
measurement concepts, dual aspect concepts etc. will also be discussed in detail under this report
so that business will be able to present the true financial statements in the future.
MAIN BODY
Describing six accounting concepts
Accounting concepts are the ones that are set of general conventions that are used by
business managers in form of general guidelines when dealing with various types of accounting
situations. Some accounting concepts are been described in detail as follows:
Going concern: According to this concept all the business transactions of the company at
any particular point of time are recorded on basis of assumption of its prolonged running of the
operations without any kind of reason for discontinue of operations. This means that each and
every company that is working for achieving any kind of particular motive in the business is
expected to follow this principle for valuing it various assets (Hilorme and et.al., 2019).
Although this principle does not work for certain companies in those cases where company
includes long term assets in quarterly reports and is currently facing any kind of lawsuit in the
present time. For instance: If any company in UK closes one of its segment of the product line
than it does not mean that going concern is not followed rather it will be applicable to whole
organization.
Business entity concept: Under this concept every business entity is considered as
separate legal entity than its proprietor. Also, it states that all the affairs of the company are
related with nay activity would not be mixed up with the owner of the firm. Furthermore, all the
business transactions will be recorded in the business books in proper format and would be
shown separately under the heading of capital account. Also, this concept applies to all types of
firms such as partnership, sole trader or any company. For example : if any kind of household
expense are done by the owner than it would be treated in the name of drawings and not the
business expense (Sauerbronn and et.al., 2021). Moreover, through following such type of
concept the financial integrity is maintained and the true financial position of the company is
displayed in the end of the financial position.

Dual aspect concepts: It is the concepts which states that every transaction of the
company need to be recorded in two different accounts. Also, this concept is based on the double
entry system where every transaction involves the recording in both debit and credit statement.
Moreover, the major role of such concept is that it simultaneously decrease the asset while
increasing the other (Jinjarak and et.al., 2020). Thus, all the accounting frameworks of the
company are able to generate the reliable and accurate information under various financial
statements. For example : If any loan is taken by retail company in UK from bank of England
than here both the accounts that is bank and the company are affected in forms of credit and debit
entry. Moreover, through following this concept is business is able to get loans and make
investments on the long term basis. Also, it provides sense of comfort to the creditors to do the
business with the company
Cost concept : It refers to the cost of amount that is paid to acquire any kind of goods
and services. Also, it helps in valuation of resources in most efficient manner. Also, it can be
said that there are various types of costs that are included such as the opportunity costs,
accounting cost, economic cost, private cost, fixed and variable costs and much more. Moreover,
cost concept helps in maintaining consistent balance sheet reporting. Also, historical cost
principle states that assets need to be recorded on the basis of original cost rather than current
market value (Karabarbounis and Neiman, 2019). Thus, with the cost concept any company
would be able to ensure consistency in the balance sheet and verify various cost. Furthermore,
through this concept there is assurance that company would be able to have consistency and
comparability of the financial statements with the past records
Money measurement concepts : Business should only record accounting transaction
that might be expressed in terms of money. Also, these concepts ensures that information is
focused more on the quantitative information rather than the quantitative information. Thus, it
helps the company in easy comparison of recorded transaction from one period to another. Also,
through recording the monetary value of all the assets the companies are able to identify the true
financial position and identify the total value of asset and liabilities at any particular point of
time (Tiwari and Khan, 2020). For instance: Through following this concept Tesco is able to
record all the assets and liabilities in well-defined manner and also able to develop the
competitive position through devising the best strategies for the future. Furthermore, through this

concept the firms are able to find out the true financial position by analysing the profit and loss
statements.
Realization concept: On the basis of this principle it can be said that revenue might be
only recognized when the revenue with the goods is rendered or delivered respectively. For
instance: Revenue might not be recognized if advance is received and but goods are not yet
transferred, Furthermore, the major importance of using such type of principle is that risk might
be minimized. Also, it helps in giving importance to legal ownership that is acceptable and
enforceable by the law. Furthermore, it helps in guiding the overall accounting process and the
recognition of revenue on time
CONCLUSION
From the above report it can be concluded that there are various accounting concepts
once when used helps in making the organization run smoothly and efficiently over long period.
Lastly, the report had provided various business examples in the end for better understanding.

REFERENCES
Books and Journals
Hilorme, T. and et.al., 2019. Human capital cost accounting in the company management
system. Academy of Accounting and Financial Studies Journal. 23. pp.1-6.
Jinjarak, Y. and et.al., 2020. Accounting for global COVID-19 diffusion patterns, January–April
2020. Economics of disasters and climate change. 4(3). pp.515-559.
Karabarbounis, L. and Neiman, B., 2019. Accounting for factorless income. NBER
Macroeconomics Annual. 33(1). pp.167-228.
Sauerbronn, F. F. and et.al., 2021. Decolonial studies in accounting? Emerging contributions
from Latin America. Critical Perspectives on Accounting. p.102281.
Tiwari, K. and Khan, M. S., 2020. Sustainability accounting and reporting in the industry
4.0. Journal of cleaner production. 258. p.120783.