1. Introduction
The financial statements prepared by a firm must be based on certain concept. Accounting concept is a guideline or regulation standards have been generally accepted and recognized in the processing and presentation of accounting data. The aim of concept is to ensure that financial reports were made honestly and fairly and to avoid distortion in the practice of accounting. Thus, the concept must be known to understand the accounting process. We want to discuss about meaning, practical instance, usefulness, limitation and application in the finance statement of five accounting concepts. The five accounting concepts we choose to discuss are money measurement concept, accounting period concept, historical cost concept, going concern …show more content…
For example, Billy Trading give Albert Trading an invoice to prove Billy Trading sold goods to Albert Trading on credit term.
2.3 Research the usefulness and limitations of the five accounting concepts above.
The usefulness of money measurement concept is the constant measurement unit will simplify the work of recording transactions, business reporting and comparisons. The limitation of money measurement concept is only can record factors that can be measured by money. Aspects that cannot be objectively measured, such as work experience, honesty of employees, effective management cannot be recorded. Currency value is assumed to be constant, but in reality, the currency often changes from time to time, depending on demand and supply.
Objectivity Concept has advantageousness. Fair value in the financial position will provide a clearer picture of a business or can claim the possible risks faced by the business. Objectivity Concept also has shortcoming. Therefore, the financial statements give updates on business and investors can make more accurate assessment.
2.4 Illustrate how three of the above accounting concepts are applied in the financial
The financial statements prepared by a firm must be based on certain concept. Accounting concept is a guideline or regulation standards have been generally accepted and recognized in the processing and presentation of accounting data. The aim of concept is to ensure that financial reports were made honestly and fairly and to avoid distortion in the practice of accounting. Thus, the concept must be known to understand the accounting process. We want to discuss about meaning, practical instance, usefulness, limitation and application in the finance statement of five accounting concepts. The five accounting concepts we choose to discuss are money measurement concept, accounting period concept, historical cost concept, going concern …show more content…
For example, Billy Trading give Albert Trading an invoice to prove Billy Trading sold goods to Albert Trading on credit term.
2.3 Research the usefulness and limitations of the five accounting concepts above.
The usefulness of money measurement concept is the constant measurement unit will simplify the work of recording transactions, business reporting and comparisons. The limitation of money measurement concept is only can record factors that can be measured by money. Aspects that cannot be objectively measured, such as work experience, honesty of employees, effective management cannot be recorded. Currency value is assumed to be constant, but in reality, the currency often changes from time to time, depending on demand and supply.
Objectivity Concept has advantageousness. Fair value in the financial position will provide a clearer picture of a business or can claim the possible risks faced by the business. Objectivity Concept also has shortcoming. Therefore, the financial statements give updates on business and investors can make more accurate assessment.
2.4 Illustrate how three of the above accounting concepts are applied in the financial