Accounting for Business: Key Concepts and Financial Report Analysis

This report provides an overview of key accounting concepts used in the preparation of financial statements, including the accrual concept, consistency concept, going concern, conservation concept, and economic entity concept. Each concept is explained with relevant examples to illustrate their practical application in business accounting. Furthermore, the report discusses the qualitative characteristics of financial reports, distinguishing between fundamental characteristics such as relevance and representational faithfulness, and enhancing characteristics like verifiability, timeliness, understandability, and comparability. The document concludes by emphasizing the importance of these concepts and characteristics in ensuring the clarity, accuracy, and usefulness of financial information for various stakeholders. Desklib offers a wealth of similar solved assignments and past papers for students seeking to enhance their understanding of accounting and finance.

ACCOUNTING FOR
BUSINESS
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
a) Five accounting concepts used in the preparation of financial statements with example......3
B) Qualitative characteristics of financial report which make information useful to users of
these financial report...................................................................................................................4
CONCLUSION................................................................................................................................5
REFERNCES...................................................................................................................................6
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INTRODUCTION
Business accounting is the process of recording, analysing, interpreting the financial data in a
more systematic way. Accounts are maintained by each and every business whether a sole
proprietary, partnership firm, big or small organization. Managing accounts in business is not
like drinking a cup of tea. It is wider concept which require knowledge and skills. All the
business operation which are related in terms of money are posted here (Bacheva, 2019.). The
data or information that are recorded there is of financial nature which directly or indirectly
affect the working of our company. There are two ways to manage accounts that are managerial
accounting and cost accounting.
TASK
a) Five accounting concepts used in the preparation of financial statements with example.
Accrual concept: Accrual concept says that the transaction should be recorded at the
time it occurs whether the payment is received or not. This concept follows the principle of
matching which says that revenue and expenses should be posted at the same point when they
happen.
For example: An invoice is made for the customer who buy the goods from the company on 10th
October (Prestwood, 2018). The purchases are in credit and the creditor say the payment will be
given after 60 days. So according to accrual concept the transaction will be recorded on the same
date i.e., on 10th Oct rather than after 60 days.
Consistency concept: This concept says if the firm has chosen one accounting method to
record their financial transaction then they should stick on it for future. The company cannot
change the method frequently without any approval.
Ex: If the company depreciate their machinery on straight line method and suddenly they think
that they will adopt written down method so this cannot happen because first they need to take
approval from IFS.
Going Concern: Going concern means that business should run for longer period of
time. They say that businessmen should thin that their firm will continue to run in the future.
There is an assumption that operation of the company will remain operate in future period. This
concept is also known as continuing concept.
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For example: A company has some accrual expenses which they will pay after some period. So
according to this concept the company believes that they will rum for longer period so will not
be in hurry to pay accrual expenses.
Conservation Concept: Under this concept, expense are revenues are two different
things. There effect is also different on the company’s performance (Rothenfluh and Schulz,
2018). This concept says that they should be recorded in different manner and also treated in
assorted way.
Example: A company pay the salary to their employee. There are two accounts in this cash and
salary so according to this cash account should be treated as expense and salary as a revenue
account. Cash account should be credited and salary should be debited.
Economic entity concept: This concept says that business and the person who rum
business is two different entities. Any things happen in the organization will affect and treated as
the problem of the business. The transaction of organization should be recorded.
For example: Any personal expense of the businessmen is not recorded in the account vof the
company.
B) Qualitative characteristics of financial report which make information useful to users of these
financial report.
There are two type of quantitative characteristics that make useful information:
1) Fundamental Characteristics: These are those primary characteristics which is
directly useful to the users. They are of two type
Relevance: According to this the information should be relevant to the finance so that it can be
helpful in predicting the future (Weygandt and et. al, 2019. Unnecessary information should not
be there. It should be either in confirmatory or predictive values.
Representational faithfulness: It is also called as reliability. It means that the information that is
gather should be reliable and accurate and should be based on company resources. It means that
the information should be complete, free from error and neutral.
2) Enhancing Characteristics: These are of secondary type which users uses indirectly to
make financial decision. They are of four types which is discussed below:
Verifiability: It is that type of characteristics which says that the information that is gather should
be of verified in nature. It should say that information should poose the quality of assurance.
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Timeliness: Timeliness means the information that is gather should be reached to the user before
the time, information should not lose their existence after the receiving it to the user (Robillard
and et. Al, 2018). The time of the information should not be long or to short. The information
should possess some degree to be relevant.
Understandability: It is that quality of the information that says that the data that is collected or
make available should be in language that could easily be read by the user. It should perceive the
quality of significance. It should be in such way that could be understand by the user who want
and cannot be understand by an unauthorized person.
Comparability: For making financial decision the data should be compared. So any financial data
or information that is prepared should hold the quality of being compared by other financial data.
The decision maker always compares the data and then come to the final conclusion are made
between the same type of information.
CONCLUSION
From the above topic it is been concluded that every organization whether it run in a small scale
or larger follows the accounting concept. The accounting concepts are being followed so that
they can make a proper financial statement for their company. It is also observing that there are
some quantitative quality of the data which makes the information clear and precise so that it can
be used by different users to make some decision.
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REFERNCES
Bacheva, S., 2019. Conceptual Basics of Accounting Theory–Accounting Rules. Ikonomiceski i
Sotsialni Alternativi, (3). pp.97-107.
Prestwood, R.L., 2018. A Basic Understanding of Accounting Principles: a Case-by-Case
Study (Doctoral dissertation, University of Mississippi).
Robillard, J.M., and et. Al, 2018. The QUEST for quality online health information: validation of
a short quantitative tool. BMC medical informatics and decision making, 18(1). pp.1-15.
Rothenfluh, F. and Schulz, P.J., 2018. Content, quality, and assessment tools of physician-rating
websites in 12 countries: quantitative analysis. Journal of medical Internet research. 20(6),
p.e9105.
Weygandt, J.J. And et. Al, 2019. Accounting Principles, Volume 2. John Wiley & Sons.
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