accounting

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Examining different cost method comparisons

The historical cost measurement is the recording of assets at their cost.Historical cost measurement the asset would continue to be reported at original cost.

[Frank Wood &Alan Sangster 2008] Assets are normally shown at cost price ,and that this is the basis for valuation of the assets.

[Financial Accounting,Ken Trotman/Michael Gibbins ,1998] Assets are initially recorded at cost.

Money Measurement Concept or Monentary Principle

[Accounting,2nd edition,John Wiley&Sons Australia,2003] The monetary assumption requires that only those things that can be expressed in money are included in the accounting record.The exchange of money is fundamental to business transactions,it makes sense that we measure a business in terms of money.

[Frank Wood &Alan Sangster 2008] It can be measured in monetary units and most people will agree to the monetary value of the transaction.

[Financial Accounting,Ken Trotman/Michael Gibbins ,1998] Accounting transactions need to be measured in a common denominator,which in Australia ,the Australia dollar.Transactions that cannot be reasonably assigned a dollar value are not included in the accounts.This concept also assumes that the value of the monetary unit is constant over time,which ignores inflation.

The Business Entity Concept or Accounting Entity/Concept

[Accounting,2nd edition,John Wiley&Sons Australia,2003] The accounting entity assumption states that every entity can be separately identified and accounted for.

[Frank Wood &Alan Sangster 2008] The business entity concept implies that the affairs of a business are to be treated as being quite separate from the non-business activities of its owner(s).

[Financial Accounting,Ken Trotman/Michael Gibbins ,1998] Under this concept the accounting entity is separate and distinguishable from its owners.Accounting entities do not necessarily correspond to legal entities.This concept puts a boundary on the transactions that are to be recorded for any particular accounting entity.

The Time Interval Concept or Accounting Period Assumption/Principle

[Accounting,2nd edition,John Wiley&Sons Australia,2003] The period assumption states that the life of a business can be divided into artificial periods and that useful reports covering those periods can be prepared for the business.

[Frank Wood &Alan Sangster 2008] The times interval concept is that financial statement are oreoared at regular interval of one year. Companies which publish further financial statements between their annual ones describe the other as ‘interim statement’.

[Financial Accounting,Ken Trotman/Michael Gibbins ,1998] To determine profit or . loss for that period is known as the accounting period concept. The time periods are arbitrary, but most organizations report at least annually, with large companies preparing half-yearly and quarterly financial statements for outside purpose (in some countries) and at least monthly (sometimes more frequently) for management purpose.

Going Concern Assumptions

[Accounting,2nd edition,John Wiley&Sons Australia,2003] The going concern assumption states that the business will remain in operation for the foreseeable future. Management must make an assessment of the validity of the going concern assumption when preparing financial statements in accordance with accounting standards.

[Frank Wood &Alan Sangster 2008] It is assumed that the business will continues to operate for at least twelve months after the and of the reporting period.

[Financial Accounting,Ken Trotman/Michael Gibbins ,1998] Financial statements are prepared on the premise that the organization will continue operation as a going concern in the foreseeable future.

2)

Historical Cost Concept or Cost Concept

Cost Principle is the accounting concept that good services. The purchased should not be recorded in current market value. For the suitable that should be recorded in historical cost. Historical costs means the original price of purchased item that the company pays, it is carried on the of candy company.

Example:

It is carried on the candy company.

a company purchases an asset in year 1 for $100

the asset is still held at the end of year 1, when its market value is $120;

the company sells the asset in year 2 for $115.

The end of year 1, the balance sheet of asset is recorded in cost of $100. No account is taken of the increase in value from $100 to $120 in year 1. In year 2, the company records a sale of $115. But the actual cost sale is $100, so it being the historical cost of the asset. This gives rise to a profit of $15 which is whole recognised in year 2.

Money Measurement Concept / Monetary Principle

By this Monetary Principle, every transaction is measured in terms of money. The problem that cannot be expressed in terms of money is not recorded in the accounting books. Only the financial transactions are recorded.

Example:

The firm hires four worker at the end of year.

It should not be recorded in the accounting book because it contains non-financial information.

The Business Entity Concept / Accounting Entity Assumption

The accounting entity concept is the principle that financial records are prepared for a distinct unit or entity regarded as separate from the individuals. The personal even which is not related in the business of the business owners are cannot be recorded in the accounting book.

Example :

Ali purchases laptop for his own house by using RM200.

This transaction should be recorded because this is not related to the business and the laptop is for his personal use.

The Time Interval Concept / Accounting Period Assumption

This accounting principle assumes that is possible to report the ongoing activities of a business in short relative distinct time intervals such as the five months ended May 31, 2008, or the 5 weeks ended May 1, 2008. The shorter the time interval, the more need for the accountant to estimate amounts relevant to that period.

Example:

The property tax bill is received on December 10 of each year. On the income

statement for the ended year December 31, 2008, the amount is known; but

the income statement for the three months ended March 31, 2008, the

amount was not known and an estimate had to be used

It is very important that the time interval is heading of each income statement,

Label one of these financial statements with "December 31" is not good, the

reader needs to know if the statement covers in one week

ending December 31, 2008 the month ending December 31, 2008 the three

months ending December 31, 2008 or the year ended December 31, 2008.

Going Concern Assumption

We assume that the business will be in operation for a long time. It will continue in operation for future and it will be able to realize assets and discharge liabilities in the normal course of operations.

Example:

The business owner purchases the supplies $415 at the 31 march 2008

The business owner sells the goods $500 on 1 may 2008

31/3/08 debit supplies account $415 credit cash acc $415

1/5/08 debit cash $500 and credit supplies 500.


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