Archive about 'Basic Accounting Concepts and Regulatory Framework'

Test on Accounting Concepts & Regulatory Frameworks ( FA Test No 1)

Financial Accounting (FA )Test No 1:
Consist of 13 questions to test your understanding of the basic accounting concepts.
[Refer Answer to FA Answer No 1]
 

Item No

Name the Concept

QUESTIONS

(1)

?

The same accounting concepts are applied in the same way in each accounting period.

(2)

?

Always relate revenue earned in a period with expenses incurred to generate this revenue

(3)

?

A business’s financial [...]

Substance Over Form

To ensure that the financial statements reflects the complete, relevant and accurate picture of the transactions and events, it is important to appreciate and adhere to this concept called Substance Over Form

WHAT IS SUBSTANCE OVER FORM?

When an entity practice the Substance Over Form, it means that the financial statements reflect the financial reality of the [...]

Understand The Difference Between Accounting And Bookkeeping

ACCOUNTING:

Accounting is a four stage process of recording, classifying, summarizing and the interpretation of the financial statements.
The four stage process are defined below:
Recording- transactions being recorded in the books of the business
Classifying- sorting and categorizing into meaningful and orderly types or manners
Summarizing- the accounting data are summarized
Interpreting- financial data are analyzed and used to assist [...]

Full Disclosure Concept

FULL DISCLOSURE CONCEPT

Does not only contain only the facts but should relate to events, information and others which might be relevant to the users of the financial statement.

For obvious reason, full disclosure also relates to the materiality concept wherein all significant information and events need to be disclosed so as not to mislead the [...]

Accounting Period Concept

ACCOUNTING PERIOD CONCEPT

 CLICK THIS TO SEE MORE ARTICLES ON ACCOUNTING CONCEPTS & PRINCIPLES
·      A fixed equal period of time ascertained to report the financial performance of an enterprise. If this fixed equal period of time is not ascertained, the business based on the going concern concept can last a quite a long period of [...]

Difference Between Capital And Revenue Expenditure

It’s important to understand the basic difference between Capital and Revenue expenditure.
 
Append below, in tabulated form, the characteristic and some salient points to understand the difference:
 

CAPITAL EXPENDITURE

Outlay resulting in the increase or acquisition of an asset or INCREASE in the earning capacity of a business

REVENUE EXPENDITURE

Outlay as is necessary for the MAINTENANCE of earning [...]

Difference Between Cash Basis Accounting Method And Accrual Method

It’s important to understand the basic difference between the cash basis accounting method and the accrual method.
 
Append below, in tabulated form, the characteristic of both methods and some salient points to understand the importance of the different methods.

CASH ACCOUNTING METHOD

1.   All financial transactions events are based on cash basis. This applies to all [...]

Difference Between Profit And Cash

PROFIT

Profit is when the Income exceeds Expenses (Loss is when Income is lesser than Expenses).

Therefore, profit is the residual amount that remains after expenses have been deducted from income.

 

The profit shown in the Income Statement are based on the Accrual and Matching Concepts and not on cash basis. ( Refer to my article on [...]

Accrual Concept

ACCRUALS CONCEPT

The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.

ILLUSTRATION NO.1

Company A has received cash of $40,000 from his customers. [...]

Matching Concept

MATCHING CONCEPT

A process in which expenses are recognised in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income.

This process involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events.

This principle [...]