Accounting Concepts and Conventions

Flashcards for Accounting Concepts and Conventions

Accounting Concepts & Conventions

Rules and guidelines used when financial statements are prepared and presented.

GAAP: Generally Accepted Accounting Principles

A set of standards and rules governing the accounting profession.

Objectivity in Accounting

The procedures used must be agreed upon and understood by everyone, ensuring objectivity in accounting.

Subjectivity in Accounting

A method of valuation based on personal judgment, which may not be universally accepted.

Business Entity Concept (Separate Entity Concept)

The affairs of a business are separate from the personal activities of its owners.

Going Concern Concept

The business will continue to operate for the foreseeable future.

Dual Aspect Concept (Double Entry)

Every transaction must have a debit and credit of equal amounts.

Accrual Concept (Matching Concept)

Expenses and revenues are recorded in the period in which they are earned or incurred, not when paid or received.

Prudence Concept

Do not overestimate revenues or underestimate expenses, resulting in a conservatively stated financial statement.

Consistency Concept

Accountants must consistently apply the same accounting principles, methods, practices, and procedures from one period to another.

Materiality Concept

If an item is relatively small in value, it does not need separate recording and can be included in a general expense.

Money Measurement Concept

Accounting is concerned only with items that can be measured in money and have a monetary value agreed upon by most.

Historical Cost Concept

Assets are normally shown at cost price, which should be the basis for valuation.

Realization Concept

Revenue can only be recognized once the goods or services have been delivered or rendered.