(65)-THE MONEY MEASURMENT CONCEPT

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 and stocks of goods. The money measurement concept introduces limitations to the subject matter of accounts. A business may have intangible...

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WELCOME 2010

WE WISH TO OUR READERS FOR GREAT SUCCESS IN 2010We are providing free theoretical management details for businessmen, students and investorsrelated toFinancial accountingCost accountingManagement accountingFinancial managementTaxationBusiness managementAs our valuable visitor you are welcome in 2010 and we continue our service in 2010 also........

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(64)-THE CONSISTENCY CONCEPT

The Consistency Concept The consistency concept states that similar items should be accorded similar accounting treatments. Accounting is not an exact science. There are many areas in which judgment must be exercised in attributing money values to items appearing in accounts. Over the years certain procedures and principles have come to be recognized as good accounting practice, but within these limits...

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(63)-THE PRUDENCE CONCEPT

The Prudence Concept The prudence concept states that where alternative procedures, or alternative valuations, are possible, the one selected should be the one which gives the most cautions presentation of the business’s financial position or result. The importance of prudence has diminished over time. Prudence is a desirable quality of financial statements but not bedrock. The key reason for this...

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(62)-THE ACCRUALS CONCEPT OR MATCHING CONCEPT

The Accruals Concept or Matching Concept The accruals concept states that revenue and costs must be recognized as they are earned or incurred, not as money is received or paid. They must be matched with one another so far as their relationship can be established or justifiably assumed, and debit with in the profit and loss account of the period to which they relate. Financial Reporting Standards also...

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(61)-THE GOING CONCERN CONCEPT

The Going Concern Concept The going concern concept implies that the business will continue in operational existence for the foreseeable future, and that there is no intention to put the company into liquidation or to make drastic cutbacks to the scale of operations. Financial reporting standards 18 stats that the financial statements must be prepared under the going concern basis unless the entity...

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(60)-ACCOUNTING CONVENTIONS

Accounting Conventions Accounting Practice has developed gradually over a matter of centuries. Many of its procedures are operated automatically by people who have never questioned whether alternative methods exits which are just as valid. However, the procedures in common use imply the acceptance of certain concepts which are by no means self evident; nor are they the only possible concepts. These...

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(59)-SUSPENSE ACCOUNT

Suspense Accounts Suspense accounts, as well as being used to correct some errors, are also opened when it is not known immediately where to post an amount. When the mystery is solved, the suspense account is closed and the amount correctly posted using a journal entry. Suspense accounts might contain several items If more than one error or unidentifiable posting to a ledger accounts arises during...

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(58)-A SUSPENSE ACCOUNT

A Suspense Account A suspense account is an account showing a balance equal to the difference in a trial balance.A suspense account is a temporary account which can be opened for a number of reasons. The most common reasons are as follows. A trial balance is drawn up which does not balance, means total debits do not equal total credits. The bookkeeper of the business knows where to post the credit...

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(57)-DETAILS ABOUT ERRORS IN ACCOUNTING

Details about Errors in Accounting Errors of transposition An error of transposition is when two digits in an amount are accidentally recorded the wrong way round. For example, suppose that a sale is recorded in the sales account as 10560$, but it has been incorrectly recorded in the total debtors account as 10650$. The error is the transposition of the 6 and 5. Errors of omission An error of omission...

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(56)-TYPES OF ERRORS IN ACCOUNTING

Types of Errors in Accounting It is not really possible to draw up a complete list of all the errors which might be made by bookkeepers and accountants. Even if you tried, it is more than likely that as soon as you finished, someone would commit a completely new error that you had never even dreamed of,However it is possible to describe five types of error which cover most of the errors which might...

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(55)-THE OPERATION OF CONTROL ACCOUNTS

The Operation of Control Accounts The two most important control accounts are those for debtors and creditors control accounts. They are part of the double entry system. Cash books and day books are totally periodically and the appropriate totals are posted to the control accounts. The individual entries in cash and day books will have been entered one by one in the appropriate personal accounts contained...

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(54)-BALANCING AND AGREEING CONTROL ACCOUNTS

Balancing and Agreeing control Accounts The control account should be balanced regularly (at least monthly) and the balance on the account agreed with the sum of the individual debtors or creditors balances extracted from the sales or bought ledger respectively. It is one of the sad facts of an accountant’s life that more often than not the balance on the control account does not agree with the sum...

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(53)-THE PURPOSE OF CONTROL ACCOUNTS

The Purpose of Control Accounts The reasons for having control accounts are as follows. (1)-Check on the accuracy They provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchase ledger. It is very easy to make a mistake in posting entries, because there might be hundreds of entries to make. Figures might get transposed. Some entries might be omitted altogether,...

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(52)-CONTROL ACCOUNTS

Control Accounts A control account is an account in the nominal ledger in which a record is kept of the total value of a number of similar but individual items. Control accounts are used chiefly for debtors and creditors. A Debtors Control Account A debtor’s control account is an account in which records are kept of transactions involving all debtors in total. The balance on the debtors control account...

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(51)-BANK RECONCILIATION

Bank Reconciliation Bank reconciliation is a comparison of a bank statement with the cash book. Differences between the balance on the bank statement and the balance in the cash book will be errors or timing differences, and they should be identified and satisfactorily explained. The differences fall into three categories, Errors Bank charges or interest Time differences Bank reconciliation is needed...

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(50)-THE BANK STATEMENT

The Bank Statement It is common practice for a business to issue a monthly statement to each credit customer, terming, The balance he owed on his account at the beginning of the month New debts incurred by the customer during the month Payments made by him during the month The balance he owes on his account at the end of the month In the same way, a bank statement is sent by a bank to its short term...

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(49)-BANK STATEMENT AND CASH BOOK

Bank Statement and Cash Book The cash book of a business is the record of how much cash the business believes that it has in the bank. In the same way, you yourself might keep a private record of how much money you think you have in your own personal account at your bank, perhaps by making a note in your cheque book of income received and the cheques you write. If you do keep such a record you will...

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(48)-WHAT IS BANK RECONCILIATION

What is Bank Reconciliation Bank reconciliation is a comparison of a bank statement with the cask book. Differences between the balances on the bank statement and the balance in the cask book will be errors or timing differences, and they should be identified and satisfactorily explained. We will discuss...

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(47)-THE FIXED ASSET REGISTER AND THE NOMINAL LEDGER

The Fixed Asset Register and the Nominal Ledger The fixed assets register is not part of the double entry and is there for memorandum and control purposes. The fixed assets register must be reconciled to the nominal ledger to make sure that all additions, disposals and depreciation charges have been posted. For example, the total of all the cost figures in the register for motor vehicles should equal...

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(46)-THE FIXED ASSET REGISTER

The Fixed Asset Register Nearly all organization keeps fixed assets register. This is a listing of all fixed assets owned by the organization, broken down perhaps by department, location or asset type. A fixed assets register is maintained primarily for internal purposes. It shows organizations investment in capital equipment. A fixed asset register is also part of the internal control system. Fixed...

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(45)-VALUATION BASIS OF FIXED ASSETS

Valuation Basis of Fixed Assets The following valuation basis should be used for properties that are not impaired. Specialized properties should be valued on the basis of depreciated replacement cost.Specialized properties are those which, due to their specialized nature, are rarely, if ever, sold on the open market for single occupation for a continuation of their existing use, except as part of...

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(44)-FINANCIAL REPORTING STANDARDS RULES FOR FIXED ASSET REVALUATION

Financial Reporting Standards Rules for Fixed Asset Revaluation An entity may adopt a policy of revaluation tangible fixed assets. Where this policy is adopted it must be applied consistently to all assets of the same class. A class of fixed assets is a category of tangible fixed assets having a similar nature function of use in the business of an entity. Where an asset is revalued its carrying amount...

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(43)-TANGIBLE FIXED ASSETS

Tangible Fixed Assets A tangible fixed asset should initial measured at cost. Cost is purchase price and any cost directly attributable to bringing the asset into working condition for its intended use.For example of directly attributable costs are; Acquisition costs such as stamp duty Cost of site preparation and clearance Initial delivery and handling costs Installing costs Professional fees like...

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(42)-DISCLOSURES FOR FIXED ASSETS IN FINANCIAL STATEMENTS

Disclosures for Fixed Assets in Financial Statements Notes to the accounts must show, for each class of fixed assets, an analysis of the movements on both cost and depreciation provisions. Where any fixed assets of a company other than listed investments are included in the accounts at an alternative accounting valuation, the following information must also be given. The years so far as they are known...

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(41)-REVALUATION RESERVES FOR FIXED ASSETS

Revaluation Reserves for Fixed Assets Where the value of any fixed asset is determined by using the alternative accounting rules the amount of profit or loss arising must be credited or as the case may be debited to a separate reserve, the revaluation reserve. The calculation of the relevant amounts should be based on the written down values of the assets prior to revaluation.The revaluation reserve...

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(40)-VALUATION OF FIXED ASSETS

Valuation of Fixed Assets Where an asset is purchased, its cost is simply the purchase price plus any expenses incidental to its acquisition. Where an asset is produced by a company for its own use, its production cost must include the cost of row materials, consumables and other attribute direct costs such as labour cost. Production cost may additionally include a reasonable proportion of indirect...

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(39)-LEDGER ACCOUNTING ENTRIES FOR THE FIXED ASSET DISPOSALS

Ledger Accounting entries for the Fixed Asset Disposals A profit on disposal is an item of other income in the profit and loss account, and a loss on disposal is an item of expense in the profit and loss account. It is customary in ledger accounting to record the disposal of fixed assets in a disposal of fixed asset account. The profit or loss on disposal is the difference between, The sale price...

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