Theory question 104
Accounting Concepts and Conventions4. Explain the following concepts and convention: (a) money measurement; (b) business entity; (c) going-concern; (d) realisation; (e) materiality.
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(a) Money measurement: only events that can be measured in money are recorded.
(b) Business entity: the business is treated as separate from its owner, so only business transactions are recorded (owner's capital is a liability of the business).
(c) Going concern: the business is assumed to continue for the foreseeable future, so assets are valued at cost less depreciation rather than at break-up values.
(d) Realisation: revenue/profit is recognised when it is earned, normally when goods pass to the customer, not when cash is received.
(e) Materiality: items too small to affect users' decisions may be treated in the simplest way (e.g. a stapler expensed rather than capitalised).
One sentence each, with a short example where possible.