BUSINESSINKOSOVA.COM

(1) Relevance

The Convention stresses the relevance of that information is only provided by the accounting treatment is as relevant and useful to achieve their goals. For example, the business is to know what interested the total cost of the work? He is not to know how many people a lot and save what interests them.

(2) objectivity

The convention of objectivity emphasizes that accounting information must be measured and expressed by the standards that are generally acceptable. For example, should the stock of unsold homes at the end of the year is as a cost and not valued at a higher price, even if it will be probably sold at a higher price in the future. The reason for this is that no one be that the rates that prevail in the future.

(3) Feasibility

The Convention stresses, including the feasibility of time, effort and cost analysis of accounting information should be compared vis-à-vis the benefits. For example, the cost of “oil-and fat-free” The machine is so small that its breaking per unit of production is meaningless and amount to a waste of time and work of the accounting staff.

Accounting Concepts

(1) The importance

It refers to the relative importance of an object or event. Those who take the accounts constantly with the need to face judgments about materiality. Is it important enough for the user of the information, which are influenced by him? The essence of the materiality concept is: the omission or misstatement of an element is important when considering the circumstances, the extent of the problem is such that it is likely that the decision of a reasonable person relying on the report have been changed or be influenced by the inclusion or correction of the problem.

(2) Exercise

Although accounting believes in the pursuit of life to know the unity concept of the company is eternal, but he is responsible for “results of the activity during the period (usually one year) carried out. This attempt to accounting gains or losses do realized or carried . by the company during the period it is usually the calendar year (January 1 – December 31), but may in other cases it is the year (April 1 – March 31) or a different period depending on the convenience of the company or its business practices after the country.

With this concept it is necessary to take into account during the billing period, all revenues and expenditures, which take place from the time of the year. The problem is that this approach would have equitable distribution between capital expenditure and revenue will be made. Otherwise, the results of the financial statements are shown to be affected.

(3) Implementation

This concept emphasizes that profit must be considered only if it is done. The question is, should benefit at what stage are accrued as? Whether at the time of receipt of the order, or if the command is executed or when receiving money. To answer this question the accounts with the law (Act on the sale of goods) and recognizes the principle of the law or the turnover is achieved only when the goods are transferred. It means that the income is deemed to have acquired in the case, transfer of “ownership to the buyer know. Are involved in sales.

(4) the

Although the company is a company uses its artificial continuity in different reporting periods for the determination of the preliminary results divided. This gain is the measure of economic performance is a concern and as such increases the equity holders. Since winning a surplus of revenue over expenditure, it is necessary to collect all revenue and expenditure for the reporting period. The concepts of realization and exercise are derived mainly purchased by the necessity of adjustment costs with revenues in the period. Results and outputs in a profit and loss account should be transferred both to the same goods or services rendered during the reference period. The concept of reconciliation should match the revenue expenditure of the relevant accounting period. So we must determine the income during an accounting period and the costs to earn income that arise.

(5) Entity

Under this approach the task of measuring income and wealth accounting is provided to identify the identification or other entity, unit or institution and different and treated separately from its owner or contributors. In law, the distinction between owners and the company is established in the case of companies, is in the books of this distinction in the case of sole proprietorships and partnerships made as well. For example, property in the balance of society is used for commercial purposes as a business expense, but of similar goods by the owner or owners for their personal use are used as treats his drawings. Such a distinction between the owner and the business unit’s accounting earnings reports helped more objectively and fairly. It was also on the development of “responsibility accounting” out that lets us know that the profitability of the different subunits of the major companies.

(6) Currency stability

Accounting requires that the purchasing power of the monetary unit, such as rupee remains the same everywhere. For example, the intrinsic value of rupee is the same and equal to the year 1800 and 2000, excluding the effect of increasing or decreasing the purchasing power of the currency through inflation or deflation. Despite the fact that the assumption is unrealistic and practice is to ignore changes in the value of money now widely questioned, always means to integrate the proposed solutions to the changing value of money in the account., Method of current purchasing power (CPP) and the current method of cost accounting (CCA) evolutionary phase. Therefore, for the moment we have to be satisfied with the concept of “stable currency.

(7) Costs

This concept is linked to the concept of continuity of operations are. According to this study an asset, as a rule in the books is bought at the price, was recorded saying to his cost. This “cost” is the basis for the recognition of the asset over the next period. These “costs” should not be confused with the “value”.

It must be remembered that the real value of assets changes from time to time, this does not mean that the value of such assets are recorded incorrectly in the books. The book value of assets does not cover their true value. They do not signify that the values ​​that are reported the values ​​for which they are sold. While the assets are accounted for in the books at cost, over time they will decrease in value due to depreciation. In some cases, only assets as “goodwill” paid when appearing on the books at a price and that nothing is paid, it does not appear, even if that asset created the name and fame a concern.

Therefore, the values ​​attached to the balance sheet and profit in the profit and loss account shown not to say that the true measure reflect the company’s financial position because they do not compare with the market value of the assets or their replacement value. This idea that the transactions recorded at cost and is not an arbitrary or subjective value is known as cost concept. Over time, the market value of fixed assets such as land and buildings vary greatly in their costs.

These changes or variations in value are usually ignored by auditors and they know continue to appreciate in the balance sheet at cost. The principle of valuing assets at cost rather than market value is the principle of the concept of cost. In their view the current values ​​are set but rather the cost of the unit.

The cost is based on the principle of objectivity. Proponents of this method argue that as long as the users of financial statements have confidence in the statements, it is not necessary to change this procedure.

(8) Conservatism

This concept emphasizes that profit should never be expected or exaggerated. Traditionally follows accounting rule “does not win and give to all kinds of losses. For example, the closing stock is valued at cost or market value, whichever is less. The effect of the above is that, if market prices fell then the” expected loss “But if the market price increased, so you ignore the” expected benefits. ”

Critics point out that conservation is at a higher level result in the creation of hidden reserves. This is quite contrary to the doctrine of revelation. However, a reasonable degree of conservatism can not be criticized.

Accounting Equation

the concept of the two can be said that “gives every debit there is a credit” to be. Each transaction must have two effects, since the size and quantity. This concept has been in the accounting equation, that any time a company’s assets must be conducted in the same countries (monetary) and total assets outsider. This can be expressed as the equation:

An L-= P

where

A is for the assets of the company;

L stands for the debt (claims underdog) of the company;

P is entitled Holder (capital) on the unit.

(The form of the equation P = AL is the financial situation with the legal interpretation. He stressed that the claim itself the owner of the account, by providing for the demands of the disadvantages that the company total assets of the company).

One Response to “Accounting methods and accounting concepts”