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Lecture notes

MANG1025 - Accounting Concepts Notes

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This is document contains notes and definitions of the accounting concepts and conventions. *Essential!! *Precise!! * For you!!

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  • August 16, 2024
  • 4
  • 2021/2022
  • Lecture notes
  • Prof. hartley
  • All classes
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anyiamgeorge19
Accounting Concepts and Conventions

 There are several origins of accounting regulations which include:
- Company law including the Companies Act 2006
- Financial Reporting Council
- European Union (for the moment)
- International Accounting Standards Board
- Financial Services Authority and Stock Exchange
- HMRC and the taxation system

Duality
 This underpins double entry book-keeping, and is manifested in Dr and Cr entries
 It reflects the dual nature of transactions for every action, there is an equal and
opposite effect
 For every Dr there is a Cr and for every Cr there is a Dr

Business entity
 The business entity concept dictates that the transactions, assets and liabilities that
relate to an entity are accounted for separately from those of the owners
- This separation is obvious for larger businesses, but less easy to distinguish for small
businesses

Accruals basis of accounting
 Under the accruals basis of accounting basis, the effects of transactions and other
events are recognised:
- when they occur (and not as cash or is received or paid)
- they are recorded in the accounting records and reported in the financial statements
of the periods to which they relate
 Accruals involves matching revenues and costs which implies:
- Assets are included in the Statement of Financial Position at values based on cost,
not at break up values
 i.e. Non-Current Assets are depreciated
- Revenues and profits are recognised when the transactions occur rather than when
the associated cash flows happen
 i.e. Trade Payables and Trade Receivables are recognised for purchases and sales that
are made on credit

Going concern
 The financial statements are normally prepared on the assumption that an entity is a
‘going concern’
 This is an assumption that they will continue to operate for the foreseeable future
 Assets and Liabilities are included in the Statement of Financial Position at values
based on cost, not at break up values i.e.
- Non-Current Assets are depreciated
- Inventories are held at the lower of cost and net realisable vales (in the normal sales
process)
- Trade receivables are held at historic cost, rather than debt factoring values

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