[1] from
Association
The relevant conventions emphasize the fact that such information can only be provided through accounting, which is relevant and useful for achieving its objectives. For example, are companies interested in knowing the total labor cost? It doesn't know how much employees spend and how much they save.
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objectivity
The objectivity convention emphasizes that accounting information should be measured and expressed by generally accepted criteria. For example, an inventory of unsold goods at the end of the year should be valued at its cost price rather than a higher price, even though it may be sold at a higher price in the future. The reason is that no one can determine the future price.
[3] from
feasibility
The Feasibility Convention emphasizes that the time, labor and cost of analyzing accounting information should be compared to the benefits therein. For example, the cost of "oiling up" and "growth". The machine is very small, and the decomposition of each unit of production will be meaningless, which is equivalent to wasting the labor and time of the accountant.
Accounting concept
[1] from
substantive
It refers to the relative importance of a project or event. People who make accounting decisions are constantly faced with the need to make judgments about their importance. Is this project large enough for users of information to be affected? The essence of the concept of importance is that if the size of the project is based on the surrounding environment and the judgment of a reasonable person relying on the report is likely to occur, the omission or misstatement of the project is significant. Has included or affected the inclusion or correction of the project.
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Accounting period
While accounting practices believe in a continuing entity concept, that is, a company's life is permanent, it must still report the results of activities conducted during a particular period of time [usually one year]. Therefore, the accountant attempts to present the gains or losses earned or suffered by the business during the review period. Usually, it is the calendar year [January 1 to December 31], but in other cases it may be the fiscal year [April 1 to March 31] or any other period, depending on the convenience of the business. Or according to the business practices of the relevant country.
Because of this concept, it is necessary to consider all income and expenditure items generated prior to the fiscal year in the accounting period. The problem with this concept is that there should be an appropriate allocation between capital and income and expenditure. Otherwise the results of the financial statement disclosure will be affected.
[3] from
achieve
This concept emphasizes that profits should only be considered when they are implemented. The question is at what stage should we believe that profits have accumulated? Whether it is when the order is received or when the order is executed or when cash is received. In order to answer this question, the accountant complies with the law [the law on the sale of goods] and recognizes the legal principle that income can only be obtained when the goods are transferred. This means that when the property of the goods is transferred to the buyer, the profit is considered to have been accumulated. That is, when sales are affected.
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match
Although the business is a continuing business, its continuity is artificially divided into several fiscal years to determine its periodic results. This profit is an indicator of the economic performance of a problem, so it increases the owner's equity. Since the profit exceeds the income over the expenditure, it is necessary to aggregate all the income and expenses associated with the review period. The realization and accrual concepts are primarily derived from the need to match costs to the income earned during the accounting period. The income and expenses shown in the income statement must refer to the same goods or services that are transferred during the accounting period. The matching concept requires that the fee be matched to the income of the appropriate accounting period. Therefore, we must determine the income earned during a particular accounting period and the costs incurred to obtain such income.
Fives from
entity
According to this concept, the task of measuring income and wealth is enforced by the accounting of the identifiable unit or entity: the identified unit or entity is treated differently and differently from its owner or contributor. In law, the difference between the owner and the company is only obtained in the case of a joint stock company, but in accounting, this distinction is also made in the case of sole proprietors and partnerships. For example, goods used in the inventory of a business for commercial purposes are considered commercial expenses, but similar goods used by the owner [ie owner] for personal use are considered as drawings. This distinction between the owner and the business unit helps to report profitability objectively and fairly. It also contributed to the development of "responsibility accounting", enabling us to find the profitability of different sub-units of the main business.
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Stable currency unit
Accounting assumes that the rupee says that the purchasing power of the monetary unit remains unchanged. For example, the intrinsic value of one thousand rupees is the same and equal in 1,800 and 2,000 years, thus ignoring the impact of rising or falling purchasing power of monetary units due to deflation or inflation. Although the assumptions are untrue and the practice of ignoring changes in monetary value is now widely questioned, alternatives to incorporating monetary value changes into accounting statements, namely the current purchasing power method [CPP] and the current costing algorithm [CCA], are still proposed. It is in the stage of evolution. Therefore, at present we must be satisfied with the stable currency unit ' concept.
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cost
This concept is closely related to the concept of continuing operations. Accordingly, assets are usually recorded in the books at the price they receive, ie at their cost price. This 'cost' provides the basis for accounting for the asset during the specified period. This 'cost' should not be confused with "value".
It must be remembered that because the actual value of an asset changes from time to time, it does not mean that the value of these assets is incorrectly recorded in the books. The book value of the recorded assets does not reflect its actual value. They do not mean that the value indicated therein is a value that can be sold. Although assets are recorded in the books at cost, over time they are devalued due to depreciation costs. In some cases, there are only assets like "goodwill." When a payment occurs, it appears in the book at a cost. When there is no payment, it does not appear even if the asset exists in the name and reputation created by the point of interest.
Therefore, the value attached to the assets on the balance sheet and the net income shown in the income statement cannot be said to reflect the correct measure of the company's financial position, as they have nothing to do with it. The market value of the asset or its replacement value. The idea that transactions should be recorded at cost rather than subject matter or arbitrary values is called the cost concept. Over time, the market value of fixed assets such as land and buildings differs greatly from their costs.
Changes or changes in these values are often ignored by accountants and they continue to be valued on the balance sheet at historical cost. The principle of assessing fixed assets at cost rather than market value is the basic principle of the concept of cost. According to them, only the current value will fairly represent the cost of the entity.
The cost principle is based on the principle of objectivity. As long as the users of the financial statements have confidence in the statements, there is no need for the proponents of this method to change this approach.
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conservatism
This concept emphasizes that profits should never be exaggerated or expected. Traditionally, accounting follows the rule of "expecting no profit and providing all possible losses". For example, the price of a closing stock is a cost price or a market price, which is lower. Then provide the expected loss, but if the market price rises, then ignore the expected profit '.
Critics point out that excessive protection leads to the creation of secret reserves. This is exactly the opposite of the disclosure principle. However, conservatism may not be criticized to a reasonable extent.
Accounting equation
The dual concept can be expressed as "there is credit for every debit." Each transaction should have a bilateral impact on the amount of the same amount. This concept has been reflected in the accounting equation, which indicates that at any point in time, the assets of any entity must be equal to the total amount of the owner's equity and the debt of the outsider [in monetary terms]. This can be expressed in the form of an equation:
AL = P.
Where?
A represents the assets of the entity;
L represents the entity's liabilities [claims from outside parties]; and
P represents the owner's claim [capital] for the entity.
[The representation of the equation AL = P is consistent with the legal interpretation of the financial situation.
Orignal From: Accounting practices and accounting concepts
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