Question

Give short answers to the following questions: (15)
i. What is a 'dual aspect concept'?
ii. What do you understand by the term 'convention of materiality'?
iii. What is accounting equation?
iv. What does GAAP stand for?
v. What you understand by the following terms?
? Liabilities
? Assets
? Revenue

Answer 1

i. What is a 'dual aspect concept'?

Duel aspect concept is a basic accounting concept which means every business transaction is recorded in two separate accounts. As we know that there are two aspect of accounting one is debit and other is credit. So when we record debit and credit of a business transaction in relevant account in the books of account then it is known as dual aspect concept.

ii. What do you understand by the term 'convention of materiality'?

Convention of materiality says that every business facts & transactions which are relevant & important for a business entity must be recorded in the financial statements. In other words we can say that a business event or transaction may be material for a business entity or may not be material for some other business entity. So if such transaction is material then it must be recorded in the financial statements because such transaction can affect decisions of stakeholders.

iii. What is accounting equation?

As we know that accounting equation is based on double entry system of accounting which means assets of the business entity must be equal to equity and liability.

Accounting equation is as follow;

Assets = Liabilities + Equity

So every transaction will affect both aspect of accounting equation equally. So there will be a balance between both aspect of accounting equation because every transaction affect two different accounts.

iv. What does GAAP stand for?

GAAP stands for Generally Accepted Accounting Principles. These are set of basic accounting standards & principles which are very helpful in prepartion of financial statements. In other words we can say that GAAP (Generally Accepted Accounting Principles) are the basic guidelines which are very helpful in accounting recording.

v.

Liabilities;

Liabilities refers to those amount which are payble to other parties in near future time. Liabilities are financial obligations on a firm & company which are payable on predetermined date in future time. In other words we can say that liabilities refer to amounts which are owed by the business entity to other parties.

Assets;

Assets refers to those resources of a buisiness entity which have economic value and these resources have capable to generate economic benefits to the business entity. So assets may be such as; Building, plant, machinery, land, inventory, accounts receivables etc.

Revenue;

Revenue refers to the amount which is received by a firm & company during a specified accounting period. In other words we can say that any financial amount which is received or receivable by a firm or company during a specified accounting period is known as revenue.