Examining different Accounting concepts and principles Essay

It means that assets are usually shown at cost monetary value, and that this is the footing for rating of the assets. ( Frank Wood & A ; Alan Sangster ) ( pg 110 )

The accounting procedure does non seek to mensurate the current market of a concern. Alternatively, assets are recorded in cost ( historical cost ) . This cost figure will be recorded in the histories, until the plus is sold or used up. Cost is defines as the hard currency equivalent given up in exchange for the plus in an arm ‘s length between two persons or parties. This means that the monetary value agreed upon should be the consequence of a bargained dealing and non based on some other relationships. In this sense, cost is an nonsubjective step ensuing from a market dealing. ( Andrew Leong & A ; Wong Sei Van ) ( pg 324 )

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Under the historical cost construct, assets are ab initio recorded at cost. As you will see in ulterior chapters, many assets, such as stock list, will still be recorded at cost in the statement of fiscal place in subsequent periods although their value has increased. Some other assets, such as belongings, works and equipment, can be revalued sporadically. Therefore, in reading a statement of fiscal place it is of import to observe at what rating the assets are being recorded. ( Ken Trotman & A ; Michael Gibbins ) ( pg 21 )

Accounting minutess need to be measured in a common denominator, which in Australia is, non surprisingly, the Australian dollar. This allows comparings across periods and across different companies. Minutess that can non be moderately assigned a dollar value are non included in the histories. This construct besides assumes that the value of the pecuniary unit is changeless over clip, which ignores rising prices. ( Ken Trotman & A ; Michael Gibbins ) ( pg 21 )

The accounting procedure records and studies minutess which can be measured in footings of ringgit. It would be nonmeaningful to add physical units of say, Ananas comosuss and Mangifera indicas to obtain a meaningful sum, on the accounting sense. However the usage of the ringgit as a common measurement unit assumes that the value of the ringgit is stable. However, the value of the ringgit, i.e. money, will non stay unchanged because of the influence of such factors as rising prices and alterations in buying power. However, these are non usually taken into consideration in accounting studies. ( Andrew Leong & A ; Wong Sei Van ) ( pg 325 )

Accounting information has traditionally been concerned merely with those facts which are it can be measured in pecuniary units and most people will hold to the pecuniary value of the minutess. This restriction is referred to as the money measuring construct, and it means that accounting can ne’er state you everything about a concern. ( Frank Wood & A ; Alan Sangster ) ( pg 110 )

( three ) The Business Entity Concept ( or Accounting Entity Assumption/Concept )

The concern entity construct implies that the personal businesss of a concern are to be treated as being quite separate from the non-business activities of its proprietors. The points recorded in the books of the concern are, hence, restricted to the minutess of the concern. No affair what activities the owners get up to outside the concern, they are wholly disregarded in the books kept by the concern. The lone clip that the personal resources of the owners affect the accounting records of a concern is when they introduce new capital into the concern, or take drawings out of it. ( Frank Wood & A ; Alan Sangster ) ( pg 110 )

In accounting, the concern is considered to be a complete unit or entity which is different from its proprietors, creditors, employers, clients and other individuals. All of the traffics or minutess of the concern with these groups are recorded from the point of position of the concern, as a separate entity. Suppose one of the proprietors of a concern transfers some of his personal assets to the concern, for concern usage. These assets are now considered to be the belongings of the concern, from the concern ‘s point of position. From the point of position of the proprietor of the concern, this is of class seen as an investing by the proprietor in the concern. ( Andrew Leong & A ; Wong Sei Van ) ( pg 325 )

Under this construct the accounting entity is separate and distinguishable from its proprietors. For illustrations, the accounting entity of a exclusive bargainer is differentiated from the fiscal personal businesss of the proprietor. Similarly, a company is a separate entity from its stockholders. If either the exclusive bargainer or a stockholder of a company goes out and buys a new set of golf nines, it may impact his or her personal fundss but does non impact the accounting entity. Accounting entities do non needfully correspond to legal entities. For illustration, as noted above, the personal fiscal personal businesss of the exclusive bargainer can be separated from the fundss of the concern, although there is no legal differentiation. This construct puts a boundary on the minutess that are to be recorded for any peculiar accounting entity. It besides allows the proprietor to measure the public presentation of the concern. ( Ken Trotman & A ; Michael Gibbins ) ( pg 21 )

( four ) The Time Interval Concept ( or Accounting Period Assumption/Principle )

By and large, the life of a concern is assumed to cover a long period of clip and for accounting intents it is divided into units of equal length called accounting periods. Accounting periods may be of any length of clip but periods of one twelvemonth in length are the most normally used. The intent of holding accounting periods is to enable comparings and analysis of the concern ‘s fiscal place over a period of clip. After all, it would non function really much aim to the investors, directors and proprietors of a concern if the concern is analyzed merely after it closes down as the period covered would be excessively long. Accounting periods are hence a convenient manner of spliting up the life of the concern into smaller units of clip. ( Andrew Leong & A ; Wong Sei Van ) ( pg 325 )

One of the implicit in rules of accounting, the clip interval construct, is that fiscal statements are prepared at regular intervals of one twelvemonth. Companies which publish further fiscal statements between their one-year 1s describe the others as ‘interim statements ‘ . For internal direction intents, fiscal statements may be prepared far more often, perchance on a monthly footing or even more frequently. ( Frank Wood & A ; Alan Sangster ) ( pg 111 )

The life of a concern needs to be divided into distinct periods to measure public presentation from that period. Dividing the life of an organisation into equal periods to find net income or loss for that period is known as the accounting period construct. The clip periods are arbitrary, but most organisations study at least yearly, with big companies fixing semiannual and quarterly fiscal statements for outside intents ( in some states ) and at least monthly ( sometimes more often ) for direction intents. ( Ken Trotman & A ; Michael Gibbins ) ( pg 21 )

( V ) Traveling Concern Assumption

In accounting the concern endeavor is assumed to hold an indefinite life unless there is grounds that it is traveling to be liquidates in the close hereafter. This means that the accountant ignores the current settlement values of the resources in the concern because he assumes that these resources will non be sold but will be utilized by the concern in its normal operations. The traveling concern construct hence permits accounting measuring to be made on the footing of long-run considerations and non in footings of current neutralizing values. ( Andrew Leong & A ; Wong Sei Van ) ( pg 324 )

Fiscal statements are prepared on the premiss that the organisation will go on operations as a traveling concern in the foreseeable hereafter. If this is non the instance, it is necessary to describe the settlement values of an organisation ‘s assets. ( Ken Trotman & A ; Michael Gibbins ) ( pg 21 )

It is assumed that the concern will go on to run for at least 12 months after the terminal of the coverage period. Suppose, nevertheless, that a concern is pulling up its fiscal statements at 31 December 2008. Normally, utilizing historical cost construct, the assets would be shown at a entire value of $ 100,000. It is known, nevertheless, that the concern will be forced to shut down in February 2009, merely two months subsequently, and the assets are expected to be gaps for merely $ 15,000. In this instance it would non do sense to maintain to the traveling concern construct, and so we can reject the historical cost construct for plus rating intents. In the balance sheet at 31 December 2008 the assets will hence be shown at the figure of $ 15,000. Rejection of the traveling concern construct is the exclusion instead than the regulation. ( Frank Wood & A ; Alan Sangster ) ( pg 111 & A ; 112 )


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