Accounting Concepts

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi<BR><BR>Can anyone simplify accounting concepts as i feel they are so hard for me to absorb. I do want to understand them but right now i just want to know what they mean so that i can pass my exams. If there is anyone who can give good advice then i would be grateful.<BR><BR>Many thanks<BR><BR>Zoe Wyatt

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Accounting Concepts

    I think the easiest way to absorb them, not that anyone can take it all in word for word is to pick out the main points of the text, and also do plenty of mock papers with concept questions in.<BR><BR>If you need any further help you can mail me<BR>angel_wykd@hotmail.com<BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Accounting Concepts

    The 'going concern' concept. (fundamental)<BR>A business is presumed to be healthy and likely to continue in business for the foreseeable future unless the opposite is known to be true. Otherwise we would have to value stock at what we could sell it for now rather than at cost. Other concepts would also not be applicable. This is the case in 'joint ventures', where it is intended that the entity should have a short life.<BR><BR>The cost (or historic cost) concept<BR>What is the value of an asset? The amount paid for it or the amount it would sell for? Different people would say different things, depending on their interest. The only valuation which is acceptable to everybody is the cost price. There are exceptions to this: for instance, buildings can be 're-valued'.<BR><BR>The 'money measurement' concept<BR>Things which cannot have a specific value assigned to them cannot be taken into account in the books. Consequently we cannot record in the books the value of the skills of the workforce, or of low morale. <BR><BR>The 'business entity' concept<BR>A business is separate and distinct from its owners and the accounts only show the affairs of the business, not the owner. N.B. whilst this is true in accounting, it is not always so in law.<BR><BR>The 'realisation' concept<BR>Profit is realised (earned) at the moment that possession of the goods passes from the seller to the buyer.<BR>The 'dual aspect' concept<BR>There are two aspects to every transaction. For example, if I pay my friend the £10 I owe her, the two effects are: <BR>a. I have £10 less in cash <BR>b. I owe £10 less in debts. <BR>Both of these aspects need recording; hence we have the 'double-entry' system.<BR><BR>The accruals concept (fundamental)<BR>This is the one which tells us that when we calculate profit, we should deduct the value of expenses incurred (used up) rather than simply the payments made. Also applies to items of revenue.<BR><BR>The materiality concept<BR>If I buy a box of staples then the cost of this will be deducted from this years' gross profit, regardless of whether or not I use up all the individual staples before the end of the year. An individual staple would be regarded as 'immaterial' (or not worth worrying about). Whether an item is material or immaterial depends on the size of the firm, e.g. £50 worth of petrol might be immaterial to a large 'plc', but very 'material' to a small business.<BR><BR>The prudence (or conservatism) concept (fundamental)<BR>This states that profits should never be anticipated but provision should be made for an anticipated loss in asset values. If there is an alternative choice of values for an asset, the lower should be used.<BR><BR>The consistency concept (fundamental)<BR>Once a firm has chosen a particular method in accounting, it should adhere to that method in the future, so as to allow for the most meaningful comparisons on a year-by-year basis. Only when there are compelling reasons should a change be adopted, and that change should be reported.<BR><BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Accounting Concepts

    Try this a practice for the concepts:-<BR><BR>http://www.bized.ac.uk/stafsup/options/accounting/work06.htm
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Accounting Concepts

    Hi, Zoe.<BR><BR>Based on what I saw of the past exams, including December '04, you don't need to remember the details. Most of the past papers have a multiple choice question based on <i>What concept explains your answer. Is it a, b, c or d?</i> The answer is usually obvious. The other type of question asks you to simply name the concept. As far as I could tell, they only want a one word answer. Also, they tend to avoid the more obscure concepts and concentrate on <i>Going concern, Accruals or Matching, Materiality, Consistency, and Prudence.</i> Thise are fairly self-explanatory.<BR><BR>Anyway, if you show that you understand the concepts in the way that you work and answer the maths bits, the one-word answer questions aren't really a problem. Applying the concepts counts much more than being able to name them.<BR><BR>Michael<BR><BR>p.s. Are you related to the Wyatt's of Aberdare? A long shot, maybe, but it was your name that caught my attention.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Accounting Concepts

    Hi Michael<BR><BR>Thank you for your help and advice I will take it all into consideration.<BR><BR>I am from Kent so my name probably orignates from aberdere centuries ago but who knows. Thanks for asking.<BR><BR>Zoe Wyatt

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