Accounting Concepts, Conventions and Solutions

3647 Words Apr 13th, 2013 15 Pages
Table of Contents QUESTION ONE: Accounting Concepts and Conventions 1 a) Accounting Concepts 1 i) The going concern concept. 1 ii) The accruals concept (or matching concept) 1 iii) The entity concept: 3 iv) The money measurement concept: 3 v) The historical cost concept: 4 vi) The realization concept: 4 vii) Duality concept: 4 b) Accounting conventions 5 QUESTION TWO: Clashing accounting concepts and conventions that might bring about inconsistency in the accounting process 9 1. Clash between the accruals/matching concept and the prudence convention 9 2. Clash between the historical cost concept and Prudence convention 9 QUESTION THREE: Solutions to the clashing accounting concepts and conventions 11 REFERENCES 13 …show more content…
iii) The entity concept: The concept is that accountants regard a business as a separate entity, distinct from its owners or managers. The concept applies whether the business is a limited company (and so recognized in law as a separate entity) or a sole proprietorship or partnership (in which case the business is not separately recognized by the law. iv) The money measurement concept: The money measurement concept states that accounts will only deal with those items to which a monetary value can be attributed.
For example, in the balance sheet of a business, monetary values can be attributed to such assets as machinery (e.g. the original cost of the machinery; or the amount it would cost to replace the machinery) and stocks of goods (e.g. the original cost of goods, or, theoretically, the price at which the goods are likely to be sold).
The monetary measurement concept introduces limitations to the subject matter of accounts. A business may have intangible assets such as the flair of a good manager or the loyalty of its workforce. These may be important enough to give it a clear superiority over an otherwise identical business, but because they cannot be evaluated in monetary terms they do not appear anywhere in the accounts. v) The historical cost concept: A basic concept of accounting is that resources are normally