Financial Statement Accounting Concepts - LSC UoS Business Assignment

This report elucidates accounting concepts crucial in preparing financial statements, providing instances to illustrate concepts like the going concern, historical cost, money measurement, business entity, and dual aspect. It also discusses the qualitative characteristics of financial reports, emphasizing their role in making financial information useful for stakeholders. Relevance, materiality, faithful representation, comparability, verifiability, timeliness, and understandability are explored as key attributes that enhance the clarity and reliability of financial reporting. The report concludes by highlighting the importance of these concepts and characteristics in ensuring transparent and effective financial communication within organizations.

ACCOUNTING FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Accounting concepts used in financial statements......................................................................3
Going concern concept................................................................................................................3
Qualitative characteristics of financial statements reporting......................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
This report gives an illustration of accounting concepts in preparing financial statements.
Instances have been provided for illustrating the concepts of accounting. The characteristics
which are qualitative of financial reports making useful information for financial reports’ users
have also been given.
Accounting concepts used in financial statements
Going concern concept
This concept says that a business will keep going on infinitely and there will be no end to its
operations. There will be no requirement of business to liquefy its assets. The concept is used for
all organizations accounting purposes. This sale type may rise when there are finance difficulties
in running of business and creditors need cash. The concept is prominent because the fixed assets
value being sold is majorly less in comparison to the values recorded , and expectation for selling
off assets may show that anticipation of loss on sale have to be recorded in full. However, as
there doesn’t exists expectation of present need for selling the assets off , the fixed assets’ value
shall continue to show at their recorded values. Example of it can be given in a way that a
government company getting funds in tougher time by the administration keeps regard of
investors and keeps the principle of going concern in motion (Unerman, Bebbington and
O’dwyer, 2018).
Historical cost concept
Asset are represented at balance value that are cost based which are historic. Asset value
measurement method was followed by accountants preferring for methods being based on
current value form. It was although noted, that recording of assets being recorded at current
value can provide a view which is more realistic of finance position which are more of relevance.
For example, real estate value recorded in side of assets of balance sheet (Herath and Albarqi,
2017).

Money measurement concept
Accounting taking each transaction in consideration for money value and dealing in commodities
which can be converted through successful measures in value of money. Although, the
transactions may not be able to come up in the measure and thus get exclusion from report. For
example, stationery purchase has record of monetary value (Unerman, Bebbington and O’dwyer,
2018).
Business entity concept
The business organisation is termed as separate entity than the owner. This is done for correct
accounting purposes. Business owner cannot transact money for personal purposes from the
organisation’s account. Taxes if any, are filed in the name of organisation and not the owner.
This is also because of owners being treated as claimant of firm owned by them with respect to
business environment. Example may be given of a running business like a retail mall. According
to this concept, distinguish concerned to legal matters have to be done which can be present
between the business and owner. For partnerships and sole proprietor, law does no differentiation
between business and the owner. There is a distinction legal between the owners and the
business. These distinctions which are legal are not relevant and the convention of business
entity apply to the business.
Dual aspect
A transaction always has two sides affecting the balance sheet. A good being purchased will
affect both on the credit and debit side. For instance, an asset purchased with cash may reflect
asset increase whereas cash will decline. Loan repay shall occur in liability decrease of loan and
decline in asset such as cash kept at bank (Maama and Appiah, 2019).

Qualitative characteristics of financial statements reporting
Relevance
The information which is financially of relevance may prove a difference in the decision of user.
The value is being predictive or confirmatory. Information being of relevance assists in the
predicting statements of financial use.
Materiality
Materiality is threshold of information whose wrong statement may be influential on the
economics decisions of users based on financial reports. There is dependency on size of item or
error judgement of error in some cases of omitting.
Faithful representation
Financial statements are used to present economic events. Financial data must not only be
relevant, but it must also represent the phenomena it can represent in order to be valuable. When
financial statements comply with accounting standards, they can portray a fair picture (Herath
and Albarqi, 2017).
It complies with all necessary legal standards.
The framework's qualitative elements have been used.
Financial data is a representation of economic phenomena that has the following characteristics:
• It is complete.
• It is unobtrusive.
• It is devoid of errors.

Comparability
Users are able to recognise differences and similarities. Comparability is essential for evaluating
an entity's performance using financial statements. Financials that have been prepared on a
comparable basis must be utilised to assess the performance of a company over time (Lee, 2020).
• The use and disclosure of consistent accounting policies can improve comparability.
• Users can confirm comparative data in order to calculate comparable trends.
• Accounting policy disclosure informs users if various entities apply different policies.
• Consistency must be distinguished from comparability by employing consistent methodologies.
• Situations can be identified in which it becomes necessary to apply new accounting policies in
order to improve relevance and reliability.
• Accounting policies must exist and be disclosed in order for comparability and consistency to
be achieved.
Verifiability
The information related to financial aspect may be checked to assist in enabling observer for
reaching to a decision of as to an event shown or transaction is of faithful representing (Maama
and Appiah, 2019).
Timeliness
Its meaning is the available information is for making decision timely for being able to take
decision being influenced.
Understandability
It may become more relevant when information is:
 Classified
 Characterisation
 Presented with clarity (Lee, 2020).

CONCLUSION
The report presented accounting concepts with their relevance to organisation and examples were
given. Qualitative characteristics importance was discussed in helping clear presentation and
reporting of financial statements.

REFERENCES
Books and Journals
Unerman, J., Bebbington, J. and O’dwyer, B., 2018. Corporate reporting and accounting for
externalities. Accounting and Business Research, 48(5), pp.497-522.
Herath, S.K. and Albarqi, N., 2017. Financial reporting quality: A literature review. International
Journal of Business Management and Commerce, 2(2), pp.1-14.
Lee, T.A., 2020. Financial accounting theory. In The Routledge companion to accounting
history (pp. 159-184). Routledge.
Maama, H. and Appiah, K.O., 2019. Green accounting practices: lesson from an emerging
economy. Qualitative Research in Financial Markets.

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