Theory question 101
Accounting Concepts and Conventions(a) What is Accounting concept?
(b) Explain the following accounting concepts: (i) Business Entity Concept (ii) Accrual Concept (iii) Going Concern Concept (iv) Consistency Concept (v) Periodicity Concept (vi) Historical Cost Concept
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(a) Accounting concepts are the basic assumptions and rules on which financial statements are prepared.
(b)(i) Business entity: the business is separate from its owner; only business transactions are recorded.
(ii) Accrual: income and expenses are recognised when earned or incurred, not when cash is received or paid.
(iii) Going concern: the business is assumed to continue in operation for the foreseeable future.
(iv) Consistency: the same methods are used from period to period so results are comparable.
(v) Periodicity: the life of the business is divided into equal accounting periods (usually a year) for reporting.
(vi) Historical cost: assets are recorded at their original cost, not current market value.
Define, then one sentence per concept.