Question

Question1

-explain the concept and principles that underlie accounting?

-explain how accounting concepts, principles, and recognition criteria interrelated and provide guidance when recording cerian transections. provide at least one example to illustrate your answer?

-Explain the objective of general-purpose financial reporting as defined in the Conceptual Framework. Why is it necessary to have an objective?

-Provide a brief summary of each of the qualitative characteristics and the constraint on providing financial information as outlined in the Conceptual Framework
?

-Two qualitative characteristics that financial information should possess are relevance and faithful representation. Explain these concepts and discuss whether you believe one is more important than the other, or if they are equally important?

-The Conceptual Framework outlines a constraint on providing financial reports. Explain this constraint.

-The Conceptual Framework identifies qualitative characteristics as fundamental or enhancing. Describe each of the qualitative characteristics. What makes a qualitative characteristic fundamental or enhancing? Do you believe this is an important distinction?

- Identify the concepts and principles underlying accounting. LO1 The statements below refer to the concepts and principles underlying the recording of accounting information. Identify if they are true or false.

(a) The accounting period concept states that the life of a business can be divided into various periods to more accurately reflect the profit and smooth out seasonal fluctuations in profit between different periods.

(b) The cost principle states that all accounting transactions and events are recorded in the accounts at their cost.

(c) The going concern principle states that the business will remain in operation for the foreseeable future

-identify the qualitative characteristics and constraint on financial reports. LO6 From the list below, identify which of the items are considered to be qualitative characteristics or a constraint on financial information as outlined in the Conceptual Framework.

(a) Cost (b) Reliability (c) Comparability (d) Understandability (e) Affordability (f) Transferability (g) Timeliness (h) Relevance

-identify the qualitative characteristics of financial information. In the Conceptual Framework, the qualitative characteristics underlying financial reporting are classified as fundamental and enhancing. From the list below, identify which are fundamental and which are enhancing. (a) Relevance (b) Materiality (c) Timeliness (d) Comparability (e) Cost (f) Verifiability (g) Conservatism (h) Faithful representation (i) Understandability

Answer 1

Ques. explain the concept and principles that underlie accounting?

Ans. Concept and principles that underlie accounting are :

- Relevance : Relevance is the concept that the information generated by an accounting system should impact the decision-making of someone perusing the information. The concept can involve the content of the information and/or its timeliness, both of which can impact decision making. Basically relevance is usefulness of information for decision maker.

- Matching Concept: The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period. This concept is followed to prevent misstatement of earnings. This means that expenses should be recognized in same accounting period when revenue is earned.  

- Going concern: The going concern concept is a fundamental principle of accounting. It assumes that during and beyond the next fiscal period a company will complete its current plans, use its existing assets and continue to meet its financial obligations. This means that business operates for foreseeable future. This principle is followed because if business is going to discontinue it's operations, then it will not be able to realise recorded value of it's assets.

- Accruals : Accruals Concept of accounting requires that income and expense must be recognized in the accounting periods to which they relate rather than on cash basis. This means that expenses and revenues should be recognized on accrual basis i.e., when they are earned or accrued. Receipt and payments concepts should not be followed to recognize revenue and expenses.  

- Materiality : The materiality concept refers to a situation where the financial information of a company is considered to be material from the point of view of the preparation of the financial statements if it has the potential to alter the view or opinion of a reasonable person. This means that all the material information needs to be presented that can alter the opinion of any reasonable person transparently.

- Historical Cost : A historical cost is a measure of value used in accounting in which the value of an asset on the balance sheet is recorded at its original cost when acquired by the company. This means that assets should be recorded at there purchase price rather than reliable value or fair market value.

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