Question

Write a short essay (minimum 400 words) defining and explaining a key concept in ACCOUNTING MAJOR

In your explanation, you should:

• Quote two different definitions of the term from different sources, and comment on how it is defined, highlighting the key concepts involved.
• Explain the different aspects or types of this concept and/or how the term is related to other concepts.
• Explain the significance of the term for your major.
• Use the term to describe an example from your own experience or from the local context.

Your Definition Submission should:

• be written in clear, accurate academic English.
• contain clear in-text citations of your sources in APA style.
• list 3 reliable sources
• include a clear references list in APA style at the end of your paper.

Answer 1

Accounting assumptions and principles provide the bases in preparing, presenting and interpreting general-purpose financial statements.

There are a many conceptual that one must understand in order to develop a foundation of how accounting works. some of them are as follows:

1. Accrual – Income is recognized when earned regardless of when collected, and expenses are recognized when incurred regardless of when paid.

2. Going concern concept. Financial statements are prepared on the assumption that the business will remain in operation in future periods. Under this assumption, revenue and expense recognition may be deferred to a future period, when the company is still operating. Otherwise, all expense recognition in particular would be accelerated into the current period.

3. Realisation concept: According to this concept, profit is recognised only when it is earned. An advance or fee paid is not considered a profit until the goods or services have been delivered to the buyer.

4. Matching concept. The expenses related to revenue should be recognized in the same period in which the revenue was recognized. By doing this, there is no deferral of expense recognition into later reporting periods, so that someone viewing a company's financial statements can be assured that all aspects of a transaction have been recorded at the same time.

5. Conservatism concept. Revenue is only recognized when there is a reasonable certainty that it will be realized, whereas expenses are recognized sooner, when there is a reasonable possibility that they will be incurred. This concept tends to result in more conservative financial statements.

6. Accounting Entity Concept – A specific business enterprise is treated as one accounting entity, separate and distinct from its owners.

7. Business entity concept: A business and its owner should be treated separately as far as their financial transactions are concerned.

8.Money measurement concept: Only business transactions that can be expressed in terms of money are recorded in accounting, though records of other types of transactions may be kept separately.

9. Dual aspect concept: For every credit, a corresponding debit is made. The recording of a transaction is complete only with this dual aspect.

Elements of Accounting

The elements of accounting pertain to assets, liabilities, and capital. Assets are resources owned by a company; liabilities are obligations to creditors and lenders; and capital refers to the interest of the owners in the business after deducting all liabilities from all assets (or, what is left for the owners after all company obligations are paid).

Accounting Equation

The accounting equation shows the relationships between the accounting elements: assets, liabilities and capital. The basic accounting equation is:

Assets = Liabilities + Capital

Accounting Conventions

There are four main conventions in practice in accounting: conservatism; consistency; full disclosure; and materiality.

Conservatism is the convention by which, when two values of a transaction are available, the lower-value transaction is recorded. By this convention, profit should never be overestimated, and there should always be a provision for losses.

Consistency prescribes the use of the same accounting principles from one period of an accounting cycle to the next, so that the same standards are applied to calculate profit and loss.

Materiality means that all material facts should be recorded in accounting. Accountants should record important data and leave out insignificant information.

Full disclosure entails the revelation of all information, both favourable and detrimental to a business enterprise, and which are of material value to creditors and debtors.