Overview of the Accounting Concept

Overview of the Accounting Concept

There are various concept and conventions in accounting, all of which are useful in solving practical accounting problem.They include:

A.      THE BUSINESS ENTITY: – Accounting view every business as an entity which is distinct from that person who owns or managed it.  Sometimes, the law makes the same distinction as in the case of a limited liability company which is a separate legal entity from the shareholders or directors.

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B.      GOING CONCERN/CONTINUITY CONCEPT: – Accounting view every business organization as capable of continuity even where its owners are no longer living.

C.      HISTORICAL COST CONCEPTS: – Accounting theory and practice founded open the cost valuation principle.  The amount of money actually exchange in a transaction is the amount used as a basic for the recognition of the goods and services acquired.  It is use to avoid errors, bias r even into material misstatement.

D.      THE QUANTIFICATION CONCEPT: – Attempt is made to reduce accounting information to common unit and it is (generally) used in most financial reporting.  This day information which is to be including in the body of financial statement must be converted to monetary terms to permits aggregate.

E.      THE DUAL ASSET CONCEPT: – This principle is the critical care of modern accounting.  It sates that there two aspects of accounting, one represented by the assets of a business and the other by the claims against him.

F.      ACCRUAL CONCEPT: – Accounting, the income accruing to the owner of a business is not necessarily the amount of cash actually received in a period of amount.  Any event which increase the proprietors capital involves the accrual of income.

For example rent, salary etc. have fallen due for payment but due to one reason or the other, they were not paid.

G.      THE REALIZATION CONVENTIONS: – Revenue is considered as earned on the day it is realized and this is when good are transferred to be customer in the exchange for a valuable consideration.

2.1            ACCOUNTING CONVENTION

A.      MATERIALITY: This concept cells for the recording transaction of which is with while certainties like stampeded pad, ink, pencil etc. are usually cheap and they lack long before they are used up.

B.      CONSISTENCY: – This stated that any method of accounting adopted by any organization should be used.  Consistency over years in order to avoid over standing the profit or capital of the firm.  Therefore enough notice is usually given before a change to a new method is effected.

C.      CONSERVATION: – Accountants make a choice as to which figure will be taken from.  This favours the figures which understate rather than over state the profit.

This imply choosing the figures that will cause that capital of the firm to be shown at a lower amount rather than at a higher amount.

2.2            ACCOUNTING INFORMATION VIA USERS

Accounting information system can be classified broadly

into financial accounting system and management accounting system.

The financial accounting system concerns financial record keeping that will provide information about the profit or loss associated with an organization economic activity during a given period.  On the other hand, management accounting system concern all financial decisions that can be taken by management to ensure effectiveness and result oriented operations.

IMPORTANT OF ACCOUNTING INFORMATION

It is necessary that an organization gets necessary accounting information in order to function effectively in the contempory world.  Accounting information is therefore important for the following reason.

a.       INPUT AND THEIR COST OF ACQUISITION

Information is needed for various input of an organization and their cost of the acquisition.

It is necessary to know the size of land acquired, cost of constructing and administrative blocks, cost of raw materials etc.

In order to enable the owner take such decision like replenishment of stock, stock valuation etc.

b.      PLANNING PRODUCTION

Accounting information helps an organization to plan out production such decision about the quantity of raw material that should be used, the quantity of raw material that would be used, the quantity of final required can easily be obtained with the help of accounting information.

COST OF VARIOUS ACTIVITIES RELATING TO PRODUCTION

Accounting information is also necessary to decide the type of labour to be acquired and the amount to be paid to labour as wages and salaries.  It is also necessary to use accounting information to solve the problem of transporting goods in and out of the factory.

C.      VALUE OF OUTPUT

Accounting information is also required to determined the value of goods required to determine the value of goods produced.  This will enable the owner decide on method of sale and fixing in selling price etc.

There is need for accounting information in order to ascertain the amount of profit or loss made in an organization as well as providing necessary tools for the determine of its true financial positions.

USERS OF ACCOUNTING INFORMATION

There are several user of accounting information in typical business organization

A.      THE PROPRIETOR: – The owners of business organization have provide the large proportion of its materials and financial resources and are intended in net only that earning from such resources but on how much drawing their should make in order not to adversely affect the progress of the business.

B.      PROSPECTIVE INVESTORS: – Those who which to become shareholders of companies required accounting information to enable them examine the performances of such organization in terms of profit ability , solvency etc.

C.      EDUCATIONAL INSTITUTIONS/RESEARCH INSTITUTION

They required accounting information for teaching and learning process as well as for research purpose.

D.      MANAGEMENT: – Management is responsible for the overall position of an organization.  They are entirely responsible for the progress or failure of a business and as such use accounting information to assess the extent of their performance which of courses is determined by the amount of profit made and the financial position of such concern among other enterprises.

E.      GOVERNMENT: – Among other things they require accounting information to enable them impose tax on profit.  This information will provide it with a guide on the ability of an organization to meet it tax obligations.

F.      LABOUR UNIONS AND EMPLOYEES: – Labour unions champions cause of their works and are interested in attracting better condition for service of them.  They are interested in making sure that are adequately remunerated.

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THE ROLE OF ACCOUNTING IN NIGERIA

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