Accounting Concepts
Overview
Every set of financial statements is built on a shared set of rules that accountants agree to follow, even when nobody is watching. These rules are not laws written by a government; they are conventions that make one business's accounts comparable with another's, and comparable with its own accounts from last year. Without them, 'profit' could mean whatever a business wanted it to mean.
In this lesson you will learn the ten accounting concepts that underpin bookkeeping and financial reporting: business entity, going concern, accruals, consistency, prudence, materiality, historic cost, realisation, duality and money measurement. For each one you will see a concrete example of it being applied, or of what goes wrong when it is ignored.
Objectives
- Understand the significance of the following accounting concepts: consistency, prudence, accruals, materiality, money measurement and business entity
Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Accounting Concepts. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- A sole trader takes goods from the business for personal use without paying for them. This must be recorded as drawings because of which concept? A) Going concern B) Business entity C) Realisation D) Materiality Answer: B
- Closing inventory cost 6,000 but has a net realisable value of 5,200. At which value should it appear in the financial statements, and under which concept? A) 6,000, historic cost B) 5,200, prudence C) 6,000, consistency D) 5,200, materiality Answer: B
- Which concept states that revenue is recognised when a sale is legally completed, not when cash is received? A) Accruals B) Realisation C) Duality D) Going concern Answer: B
- A business always depreciates its vehicles using the same method each year unless there is good reason to change. This reflects which concept? A) Prudence B) Materiality C) Consistency D) Historic cost Answer: C
- A business buys a non-current asset for 40,000 in cash. Recording both the increase in the asset and the decrease in cash reflects which concept? A) Duality B) Money measurement C) Materiality D) Realisation Answer: A
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Recommended Books
Practice Mock Questions
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