Accounting Principles and Concepts
Business Entity – the business is seen as a separate entity from its owner(s).
Going Concern – this concept assumes that the entity will continue to operate in the foreseeable future, unless there is a clear evidence to the contrary. The balance sheet and profit and loss account on the basis that the assets will not be liquidated but have a continuing value to the business. Periodicity – the final accounts of the company, i.e. income statements (profit and loss account), balance sheet and, for larger companies, cash flow statements, have to be prepared on an annual basis. Money Measurement – transactions are recorded in money terms. Financial statements are drawn up with all revenues, expenses, assets and liability similarly express.
Historical Cost – assets, liabilities and expenses are all entered into the books of accounts at their actual cost to the business. Materiality – information is material if it could influence user’s decisions on the basis of the financial statements. Duality – the double entry system is fundamental to accounting. Every entry into the accounts has twofold effect. Every time something is received, something is given; for every debit there is a credit. Realisation – profit on a transaction is realised when the legal title of the goods has been transferred, the vendor then has a legal right to the receipt of the money. Matching – costs are matched with revenues in a given accounting period. Accruals – revenues and costs are recorded in the accounts as they are incurred, not as they are received or paid. Objectivity – accounts should be: factual, free from bias, and verifiable.
The Essay on Cost Accounting
If you are starting out in a new business, especially a service/manufacturing business, understanding the cost accounting system and which cost accounting system will work best for your company, is the first step to being successful. Once you find someone to help you navigate those waters, let them help you sail the rough seas of direct and indirect inventory, direct and indirect labor costs, and ...
