UNIT TWO ACCOUNTING CONCEPTS AND CONVENTIONS. WHAT ARE ACCOUNTING CONCEPTS & CONVENTIONS? ACCOUNTING CONCEPTS Rules of accounting that should be followed.

Slides:



Advertisements
Similar presentations
ACCG Introduction to Accounting A
Advertisements

Part 2 Introduction Chapter 9, Section Prepare post-closing trial balance 7.Post adjusting and closing entries 6.Journalize adjusting.
Basic Accounting Concepts
MEANING  Final accounts prepared at the year consist of trading, profit & loss account and balance sheet. In order to decided as to which item will be.
Chapter 4 The effect of profit or loss on capital and the double entry system for expenses and revenues.
The Financial Statements
Slide 2-1 ECON 3A UCSB ANDERSON Financial Statements and the Annual Report Chapter 2.
The Accounting System & Double Entry Bookkeeping The principles of double entry bookkeeping and the effect.
CONCEPTUAL FRAMEWORK OF ACCOUNTING Samir K Mahajan.
CHAPTER 1: Accounting in Action
Accounting Concepts and Principles
CONCEPTUAL FRAMEWORK OF ACCOUNTING
Financial Accounting.
ACCOUNTING TRANSACTION CYCLE
Unit Branches of Accounting There are three branches of Accounting. i) Financial accounting; ii) Cost accounting; iii) Management accounting. Question.1.
Financial Accounting Dave Ludwick, P.Eng, MBA, PMP, PhD Chapter 2 Financial Statements & Accounting Transactions.
 Business-entity - A business should be a separate entity from the owner of a business  Personal items  Records and transactions.
Accounting Concepts & Rules In this lesson we study different concepts used in accounting which help us make correct accounts.
Conceptual Framework For Financial Reporting
Introduction to Accounting & Business CPA, MBA By Rachelle Agatha, CPA, MBA Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac.
C The Accounting Equation and Balance Sheet 2.The Double Entry System for asset, liabilities and capital 3.Inventory 4.The effect of profit and.
Chapter 7 Preparing Financial Statements and Analyzing Business Transactions.
FA1 Concepts & Conventions. Regulation Self-Regulation National Law EU law.
Concepts of accounting. When an accountant prepares the accounts for a business, there are a number of key accounting concepts that he or she must apply.
1 Introduction of Accounting and Principles Chapter No 2.
Chapter 8 Introduction. What is a Work Sheet?  Is an informal business paper used to organize and plan the information for the financial statements 
Needles Powers Crosson Principles of Accounting 12e Adjusting the Accounts 3 C H A P T E R © human/iStockphoto.
Accounting Concepts Accountancy T. S. Grewal's Double Entry Book Keeping Presentation By : Vinod Kumar (PGT Commerce) The Lawrence School Sanawar .
HFT 2403 Financial Accounting Exam 1 Review Summer 2006.
Financial Reporting and Analysis
Preparation of Financial Statements- LKAS 1
GAAP PowerPoint #3. Understandability Decision Usefulness Relevance Predictive Value Feedback Value Timeliness Reliability Verifiability Neutrality Representational.
Trial Balance – what next?. Trial Balance AccountDrCrPEARLSSOCISFP Capital 250,000 Sales 125,500 Inventory58,533 Machinery100,000 Vehicles65,000 Office.
BUSINESS ACCOUNTING U23348/U20431/U21076
Accounting and Financial Statements Module 2. SAP 2007 / SAP University Alliances Introductory Accounting Objectives Discuss goals and uses of accounting.
1 ACC102: FINANCIAL ACCOUNTING Week 3: Lecture 4.
Discuss Accounting Concepts of Assets 1. Asset -- a resource that has a potential future economic benefit. 2. Asset Valuation -- the monetary amount assigned.
1 FINANCIAL ACCOUNTING Week 2: LECTURE 2. 2 Learning Objectives What are accounts and what is the ledger? Understand the principles of double entry. Understand.
Accounting Concepts - Thomas Sanders. Accounting Period Cycle - Chapter 6 ● Changes in financial info are reported for a specific period of time in the.
Financial Statements for a Corporation Making Accounting Relevant Public corporations often offer Web sites where they provide financial data. Making Accounting.
STRUCTURE OF ACCOUNTING THEORY. ACCOUNTING THEORY -“A systematic statement of the rules or principles which underlie or govern a set of phenomena.” -“A.
The 10 Commandments Rules Which are?. Our laws are based on the 10 Commandments Why do we need laws? – So that everyone does the same thing.
PRE-PARED BY: AZHAR AHMED 1-1 CHAPTER 4 The Financial Statements.
Concepts, Bases and Policies 1 Ms Marshall 5th Year Accounting.
1 Accounting Concepts and Principles. 2 Introduction Actually there are a number of accounting concepts and principles based on which we prepare our accounts.
/ AAT Level 3 Accounts Preparation This Unit will be divided into 5 lessons: Lesson 1:
1 Chapter 3: The Measurement Fundamentals of Financial Accounting.
上海金融学院 1-1 Lecture 3 Investment Banking Basics: The Financial Statements.
ACCOUNTING FOR MANAGERS. MODULE:1 THE FOUNDATION.
Welcome to… Principles of Accounting 1 Text book:Fundamentals Accounting Priciples Wild,Larson, Chiapetta Sumia E. Mohieldin Phone #:
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. THE ACCOUNTING CONCEPTS Chapter 2 – First Part.
1 Accounting Concepts and Principles Dr. Clive Vlieland-Boddy.
Accounting Principles. GAAP (Generally Accepted Accounting Principles): The rules that govern accounting are called GAAP (Generally Accepted Accounting.
Financial Management Chapter 1- Introduction to Accounting & Finance Session Number N1.
1.01 Generally Accepted Accounting Principles – Accounting Constraints, Concepts, Assumptions, and Principles GAAP PowerPoint #3.
Generally Accepted Accounting Principles (GAAP)
The Financial Statements
Lecture 2. Accounting Concepts and Policies
UNIT – I Accounting Concepts
Accounting Concepts, principles & policies
Concepts of accounting
© 2007 McGraw-Hill Ryerson Ltd.
BASIC ACCOUNTING CONCEPTS
CHAPTER 1: BASIC ACCOUNTING: CONCEPTS, AND CONVENTIONS
Accounting for Business Lecture 1. ACCOUNTING DEFINITION.
Chapter 1 Accounting.
Chapter 1 Accounting.
Chapter 1 Accounting.
Extending Financial Statement Information on a Work Sheet
1 Accounting Concepts and Principles. 2 Introduction Actually there are a number of accounting concepts and principles based on which we prepare our accounts.
Presentation transcript:

UNIT TWO ACCOUNTING CONCEPTS AND CONVENTIONS

WHAT ARE ACCOUNTING CONCEPTS & CONVENTIONS? ACCOUNTING CONCEPTS Rules of accounting that should be followed in the preparation of all account and financial statements.

Example: every transactions employ the double entry system ie. For every debit entry there is a credit entry.

ACCOUNTING CONVENTIONS Guidelines that arise from the practical application of accounting principles. An accounting convention is not a legally-binding practice; rather, it is a generally-accepted convention based on customs, and is designed to help accountants overcome practical problems that arise out of the preparation of financial statements. As customs change, so to will accounting conventions.

ACCOUNTING CONCEPTS & CONVENTIONS Students are to research the list of concepts & conventions and come prepare to explain what the respective accounting concepts & conventions are (use examples}.

ACCOUNTING CONCEPTS & CONVENTIONS  GOING CONCERN  ACCURALS  PRUDENCE  CONSISTENCY  HISTORIC COSTS  MONEY MEASUREMENT  MATERIALITY  REALIZATION

 OBJECTIVITY  BUSINESS ENTITY  DUALITY USE EXAMPLES WHERE POSSIBLE.

WHAT IS A GOING CONCERN? Applies only to limited liability companies {those companies listed on the stock exchange}. These companies will continue to be in business in the foreseeable future, even after the current shareholders are no longer alive.

Example Grace Kennedy & Co. will continue in business even after the current shareholders / owners are no longer alive. Sole traders and partnerships are excluded. They are not going concern.

WHAT ARE ACCURALS? Revenues and expenses are recorded when they occur and not when the cash is received or paid out. Example: both credit sales and purchases are included in the calculation of profit / loss.

WHAT IS PRUDENCE? Meaning revenues and profits are not anticipated. Only realized profits with reasonable certainty are recognized in the profit and loss account.

However, provisions is made for all known expenses and losses whether it is known for certain or estimated. This treatment minimizes the reported profits and assets values.

EXAMPLES Fixed assets must be depreciated over their useful economic life. The provision of doubtful debt should be made.

WHAT IS CONSISTENCY? CONSISTENCY CONCEPT : once an accounting method has been chosen, that method should be used unless there is a sound reason to do otherwise. Example using the horizontal or vertical method to prepare the income statement and balance sheet.

WHAT ARE HISTORIC COSTS? HISTORIC COSTS: the actual cost paid for an asset, and not its current market value. Fixed assets are recorded in the accounting books at historic costs. Example: In 2013 CMI purchased building in Port Royal for JA$11,000,000. In 2014, the value of the property is JA$12,000,000. In the co’s book of 2014, JA$11m is recorded and not JA$12m.

WHAT IS MONEY MEASUREMENT? MONEY MEASUREMENT : process by which all transactions are recorded in monetary terms. It provides a common unit of measurement Market conditions, technology changes, and management efficiency will not be disclosed in the accounts.

WHAT IS REALIZATION? Meaning revenues should be recognized when the major economic is completed. Sales are recognized when the goods are sold and delivered to the customers or services are rendered.

EXAMPLE

WHAT IS MATERIALITY? Meaning immaterial amounts may be aggregated with the amount of a similar nature or function and need not be presented separately. It depends on the size and nature of the item.

EXAMPLES Small payments such as stationary, postage and cleaning expenses should not be disclosed separately. They should be group together as sundry expenses.

EXAMPLES The costs of small-valued assets such as pencils, sharpeners and paper clips should be written of to the profit and loss account as revenue expenditures, although they can last for period exceeding one year.

WHAT IS OBJECTIVITY? Meaning information must be free from bias and are capable of independent verification. Information should be based upon verifiable evidence such as invoices and contracts.

EXAMPLES The recognition of revenues should be based on verifiable evidence such as the delivery of goods or the issue of invoices.

WHAT IS BUSINESS ENTITY? Meaning the business and its owners are two separate existence entities. Any private and personal incomes and expenses of the owner{s} should not be treated as incomes or expenses of the business.

EXAMPLES Insurance premium for the owner’s house should be excluded from the expenses of the business. The owner’s property should not be included in the premises account of the business.

Any payments for owner’s personal expenses by the business should be treated as drawings and reduce the owners capital in the business.

WHAT IS DUALITY? All accounts are of a twofold nature and this means data will be recorded in two accounts {a debt and credit entry}.