Question

WEST AFRICAN SCIENCE SERVICE CENTRE CLIMATE CHANGE AND ADAPTED LAND USE (WASCAL) IS AN INTERNATIONAL ORGANIZATION IN GHANA FOUNDED BY GERMAN GOVERNMENT AND OPERATE IN 12 WEST AFRICAN COUNTRIES WRITE ACCOUNTING POLICIES FOR WASCAL IN PREPARATION OF FINANCIAL STATEMENT.

Answer 1

Four Key Assumptions

The key assumptions in generally accepted accounting principles are: business entity, going concern, monetary unit and time period principle. The business entity assumption is the idea that the business functions as a legal and financial entity separate from its owners or any other business. This assumption means that all the amounts shown as revenue or expense in the financial statements are for the business alone and do not include any personal expenses. "Going concern" is the assumption that the business will operate for the foreseeable future. This is important when calculating the values for assets, depreciation and amortization. The monetary unit assumption is that all the amounts listed use one stable currency, and that any amounts in another currency are clearly listed. "Time period" assumes that all the transactions reported did in fact occur within the time period as listed.

Four Basic Principles
The four basic accounting principles are: cost, revenue, matching and disclosure. The cost principle refers to the notion that all values listed and reported are the costs to obtain or acquire the asset, and not the fair market value. The revenue principle states that all revenue must be reported when is it realized and earned, not necessarily when the actual cash is received. This is also known as accrual accounting. The matching principle holds that the expenses in the financial statement must be matched with the revenue. The value of the expense is included in the financial statements when the work product is sold, not necessarily when the work or invoice is issued. Finally, the disclosure principle holds that information pertinent to make a reasonable judgment on the company's finances must be included, so long as the costs to obtain that information is reasonable.

Four Basic Constraints
The four basic constraints in accounting principles are: objectivity, materiality, consistency and prudence. The objective constraint states that all the information included in the financial statements must be supported by independent, verifiable evidence. When deciding what to include or exclude from the financial statements, the significance of the item must be considered under the materiality constraint. If this information would be significant to a reasonable third party, it must be included. The company is required to use the same accounting methods and principles each year under the consistency constraint and any variation must be reported in the financial statement notes. Under the constraint of prudence, accountants are required to choose a solution that reduces the likelihood of overstating assets and income.

The Business Entity Concept
The business entity concept provides that the accounting for a business or organization be kept separate from the personal affairs of its owner, or from any other business or organization. This means that the owner of a business should not place any personal assets on the business balance sheet. The balance sheet of the business must reflect the financial position of the business alone. Also, when transactions of the business are recorded, any personal expenditures of the owner are charged to the owner and are not allowed to affect the operating results of the business.

The Continuing Concern Concept
The continuing concern concept assumes that a business will continue to operate, unless it is known that such is not the case. The values of the assets belonging to a business that is alive and well are straightforward. For example, a supply of envelopes with the company's name printed on them would be valued at their cost. This would not be the case if the company were going out of business. In that case, the envelopes would be difficult to sell because the company's name is on them. When a company is going out of business, the values of the assets usually suffer because they have to be sold under unfavourable circumstances. The values of such assets often cannot be determined until they are actually sold.

The Principle of Conservatism
The principle of conservatism provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor understates the affairs of the business or the results of operation.

The Objectivity Principle
The objectivity principle states that accounting will be recorded on the basis of objective evidence. Objective evidence means that different people looking at the evidence will arrive at the same values for the transaction. Simply put, this means that accounting entries will be based on fact and not on personal opinion or feelings.
The source document for a transaction is almost always the best objective evidence available. The source document shows the amount agreed to by the buyer and the seller, who are usually independent and unrelated to each other.

The Time Period Concept
The time period concept provides that accounting take place over specific time periods known as fiscal periods. These fiscal periods are of equal length, and are used when measuring the financial progress of a business.

The Revenue Recognition Convention
The revenue recognition convention provides that revenue be taken into the accounts (recognized) at the time the transaction is completed. Usually, this just means recording revenue when the bill for it is sent to the customer. If it is a cash transaction, the revenue is recorded when the sale is completed and the cash received.
It is not always quite so simple. Think of the building of a large project such as a dam. It takes a construction company a number of years to complete such a project. The company does not wait until the project is entirely completed before it sends its bill. Periodically, it bills for the amount of work
completed and receives payments as the work progresses. Revenue is taken into the accounts on this periodic basis.
It is important to take revenue into the accounts properly. If this is not done, the earnings statements of the company will be incorrect and the readers of the financial statement misinformed.

The Matching Principle
The matching principle is an extension of the revenue recognition convention. The matching principle states that each expense item related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn. If this is not done, the financial statements will not measure the results of operations fairly.

The Cost Principle
The cost principle states that the accounting for purchases must be at their cost price. This is the figure that appears on the source document for the transaction in almost all cases. There is no place for guesswork or wishful thinking when accounting for purchases.
The value recorded in the accounts for an asset is not changed until later if the market value of the asset changes. It would take an entirely new transaction based on new objective evidence to change the original value of an asset.
There are times when the above type of objective evidence is not available. For example, a building could be received as a gift. In such a case, the transaction would be recorded at fair market value which must be determined by some independent means.

The Consistency Principle
The consistency principle requires accountants to apply the same methods and procedures from period to period. When they change a method from one period to another they must explain the change clearly on the financial statements. The readers of financial statements have the right to assume that consistency has been applied if there is no statement to the contrary.
The consistency principle prevents people from changing methods for the sole purpose of manipulating figures on the financial statements.

The Materiality Principle
The materiality principle requires accountants to use generally accepted accounting principles except when to do so would be expensive or difficult, and where it makes no real difference if the rules are ignored. If a rule is temporarily ignored, the net income of the company must not be significantly affected, nor should the reader's ability to judge the financial statements be impaired.

The Full Disclosure Principle
The full disclosure principle states that any and all information that affects the full understanding of a company's financial statements must be include with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers.