Unit 7 - Accounting Principles and Policies
7.1 - Accounting principles
Business Entity - financial matters of the business must be recorded separately from its owners as they are different legal persons.
Duality - Every transaction must be recorded in two accounts as debit or credit. (Double entry system).
Matching - Expenses and income must be recorded by the amount in the current financial year, whether it has been paid or not. (Prepayment must be deducted. Accruals must be added.)
Materiality - Financial information recorded must only be significant to the decision making of the company and relevant for evaluation.
Money Measurement - Financial information recorded must be in the form of monetary value or must be able to measure the data in money terms.
Prudence - Underestimate the assets and revenues. Overestimate the liabilities and expenses.
Consistency - Calculation techniques/methods shouldn’t change without good reason.
Realisation - Revenue should only be recognised when the exchange of goods or services is completed.
Historic Cost - Assets should be recorded at the cost when it was purchased, not its current value.
Going Concern - The business is assumed to continue to trade for the foreseeable future and no intention to close down.
7.2 - Accounting policies
Policies
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International Accounting Standard (IAS)
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Comparability
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Relevance
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Reliability
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Understand-ability
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