Igcse O level accounting chapter 10 - principles

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Igcse accounting chapter 10

ACCOUNTING RULES Chapter 10

INTRODUCTION
Accounting rules need to be applied in order for the preparers and users of
accounting information to understand the information.
Accounting rules also help in comparing the accounting information provided by
different businesses.

ACCOUNTING PRINCIPLES
Accounting principles are also referred as concepts. A concept is a rule which sets
down how the financial activities of a business are recorded.
There are 10 Accounting principles that need to be applied by accountants while
preparing the financial statements.

1. BUSINESS ENTITY
The business entity principle means that the business is treated as being completely
separate from the owner of the business.
The personal assets and spending of the owner do not appear in the accounting
records of the business.
If there is a transaction concerning both the business and its owner, then it is recorded
in the accounting records of the business.

2. CONSISTENCY
The consistency principle means that accounting methods must be used consistently
from one accounting period to another.
The method that has the most realistic outcome should be selected and applied
consistently by the business.
If consistency principle is not applied, a comparison of the financial results cannot be
made effectively.

3. DUALITY
This principle means that every transaction is recorded twice – once on the debit side
and once on the credit side.
Also known as the dual aspect priniciple.

4. GOING CONCERN
This principle means that the accounting records are maintained on the basis that the
business will continue to operate for an indefinite period of time.
The principle means that there is no intention to close down the business or reduce the
size of the business by any significant amount.

5. HISTORIC COST
The historic cost principle requires that all assets and expenses are initially recorded
in the ledger accounts at the actual cost.
For example: A computer equipment purchased for $5,000 would be recorded at the
same amount in the financial statements and depreciation on the non-current asset
would be accounted for separately.

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ACCOUNTING CONCEPTS:- 1. SEPARATE ENTITY CONCEPT – According to this concept, business is considered as a separate legal entity which has its distinct identity separate from its owner. This concept is extremely useful in keeping business affairs strictly free from private affairs of owner. This is the reason why withdrawal by owner from business is treated as drawing. 2. GOING CONCERN CONCEPT – According to this concept, it is assumed that business is established and will continue for a fairly long time in future. This is the reason why while valuing assets of firm current resale value is not taken into account instead depreciation is charge on basis of their expected life. 3. MONEY MEASUREMENT CONCEPT – According to this concept, accounting should necessarily record only those transactions which can be expressed in monetary terms. This is the reason why qualitative facts like change in management are not recorded in books of account. 4. COST CONCEPT – This concept is closely related to going concern concept and emphasizes that asset should be recorded at its cost price and not market price which keeps on changing. 5. DUAL ASPECT CONCEPT – The dual aspect concept states that every business transaction requires recordation in two different accounts. The concept is derived from the accounting equation, which states that: Assets = Liabilities + Equity .The accounting equation is made visible in the balance sheet, where the total amount of assets listed must equal the total of all liabilities and equity. 6. ACCOUNTING PERIOD CONCEPT – According to this concept, accounting should measure transactions at regular intervals for a specified period of time called accounting period. Necessary financial disclosures and reporting need to be made at the end of accounting period which may be quarterly, half-yearly or yearly. 7. MATCHING CONCEPT – This concept is also known as periodic matching of cost and revenue. According to this concept, profits made by business in particular accounting period can be ascertained only when the revenues earned during the period are compared with the expenses incurred in earning the revenue.

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$Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya$ $Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya$

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Presentation4 (2) survey responses clearly labelled

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Igcse O level accounting chapter 10 - principles

1. ACCOUNTING RULES Chapter 10

2. INTRODUCTION Accounting rules need to be applied in order for the preparers and users of accounting information to understand the information. Accounting rules also help in comparing the accounting information provided by different businesses.

3. ACCOUNTING PRINCIPLES Accounting principles are also referred as concepts. A concept is a rule which sets down how the financial activities of a business are recorded. There are 10 Accounting principles that need to be applied by accountants while preparing the financial statements.

4. 1. BUSINESS ENTITY The business entity principle means that the business is treated as being completely separate from the owner of the business. The personal assets and spending of the owner do not appear in the accounting records of the business. If there is a transaction concerning both the business and its owner, then it is recorded in the accounting records of the business.

5. 2. CONSISTENCY The consistency principle means that accounting methods must be used consistently from one accounting period to another. The method that has the most realistic outcome should be selected and applied consistently by the business. If consistency principle is not applied, a comparison of the financial results cannot be made effectively.

6. 3. DUALITY This principle means that every transaction is recorded twice – once on the debit side and once on the credit side. Also known as the dual aspect priniciple.

7. 4. GOING CONCERN This principle means that the accounting records are maintained on the basis that the business will continue to operate for an indefinite period of time. The principle means that there is no intention to close down the business or reduce the size of the business by any significant amount.

8. 5. HISTORIC COST The historic cost principle requires that all assets and expenses are initially recorded in the ledger accounts at the actual cost. For example: A computer equipment purchased for $5,000 would be recorded at the same amount in the financial statements and depreciation on the non-current asset would be accounted for separately.