Accounting COncepts
Accounting Rules
Accounting Principles
All the same
What is it?
The Rules of accounting that should be followed in preparation of all accounts and financial statements.
There are 7 of them we need to know;
1. Going Concerns
- The going concern concept or going concern assumption states that businesses should be treated as if they will continue to operate indefinitely or at least long enough to accomplish their objectives.
For example; An oil and gas firm operating in Nigeria is stopped by a Nigerian court from carrying out operations in Nigeria. The firm is not a going concern in Nigeria, because it has to shut down.
2. Duality
- Every transactions has TWO aspects.
For example;
3. Accruals (Matching)
- A journal entry that is used to recognize revenues and expenses that have been earned or consumed,respectively, and for which the related cash amounts have not yet been received or paid out.
- It ensures that expenses are "matched" with the revenue earned in an accounting period.
For example;
A business pays $10 rent every month. At the end of the year, they have only paid $100 for rent. Which means they have an accrual of $20.
4. Realisation of Stock Value
- The estimated selling price in the ordinary course of business minus any cost to complete and to sell the goods.
For example;
"Choi", the bananas seller in the market. She sells one banana for $15. However, they become old and are no longer fresh. Therefore, she decides to deducted to $5 for each. Which means the reliasation value of her banana is $5.
5. Prudence
- do not overestimate the amount of revenues recognized or underestimate the amount of expenses.
- UNDERSTATE ASSETS , OVERSTATE LIABILITIES
6. Consistency
- accounting methods once adopted must be applied consistently in future. Also same methods and techniques must be used for similar situations.
- It helps to compare the current performance with previous year' performance.
7. Money Measurement
- We only record information that has a clear definite monetary value, every recorded event or transaction is measured in terms of money.
For example;
We couldn't place a monetary value on
- The skills of workforce
- Good customer services
- The friendliness of the employees.
