Accounting Concepts
Overview
Why do two honest accountants, looking at the same business, arrive at the same profit? Because they are not free to record whatever they like. A set of shared accounting concepts (sometimes called principles or rules) tells everyone how transactions must be treated, so that the figures one business reports can be compared fairly with another and trusted by the people who read them.
In this lesson you will meet the ten concepts the syllabus expects you to know by name: business entity, consistency, duality, going concern, historic cost, matching, materiality, money measurement, prudence and realisation. For each one you will learn a precise definition, see a short example of it changing how something is recorded, and practise the kind of short explanation question examiners ask again and again. Get these straight and the rest of the course, from adjustments to financial statements, will finally hang together.
Objectives
- business entity.
- consistency.
- duality.
- going concern.
- historic cost.
- matching / accruals.
- materiality.
- money measurement.
- prudence.
- realisation.
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.
- An owner takes goods from the business for personal use. Which concept requires this to be recorded as drawings rather than an expense of the business? A. Going concern B. Business entity C. Materiality D. Realisation Answer: B
- Inventory cost $8,000 but can now be sold for only $5,500. At what value should it appear, and which concept applies? A. $8,000, historic cost B. $5,500, prudence C. $8,000, going concern D. $5,500, matching Answer: B
- A business records a sale only when the goods are delivered to the customer, not when the order is placed. Which concept is being applied? A. Matching B. Materiality C. Realisation D. Consistency Answer: C
- The skill of a talented manager is not shown in the accounting records. Which concept explains this? A. Money measurement B. Prudence C. Duality D. Historic cost Answer: A
- Non-current assets are shown at cost less depreciation rather than at their forced sale value because the business is assumed to continue operating. Which concept is this? A. Consistency B. Historic cost C. Going concern D. Materiality Answer: C
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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