Accounting-Concepts Igcse Edexcel

Financial statements only record and report on business activities

• The records relate to the activities of one specific business

• These records and reports must not include any personal assets, expenses and liabilities of the owner

• Personal activities must be kept separate from the business

  • Assets invested into the business by the owner are recorded in the equity account

  • Assets withdrawn from the business by the owner are recorded in the drawings account

Financial statements only contain information about the transactions involving money

• Non-monetary information is not reported on the financial statements

• Information such as experience of the staff and employee satisfaction are not included in the statements

Transactions which have a low monetary value can be grouped rather than entered into separate accounts

• Small expense items such as window cleaning may be grouped as sundry expenses

• Non-current assets which are low cost such as staplers and calculators are treated as expenses on the income statement and not recorded as capital expenditure

When a business chooses a method for a particular item, it should continue to use that method each year

• The method of depreciation used for a particular type of non-current asset should be used for that type each year

• The method for deciding on a provision for irrecoverable debts should be used each year

• The method can be changed if there is a good reason

  • But this decision and its impact needs to be recorded

Incomes and expenses must be matched to the year to which they relate or in which the benefit is gained

• Incomes and expenses must be adjusted on the income statement for accruals and prepayments to match the year in which the benefit was gained

• Non-current assets are depreciated and the yearly depreciation is charged as an expense to match the cost to the year of its useful life

• A provision for irrecoverable debts is used to reduce the profit by an amount that is unlikely ever to be received

A business should not overstate its profit or its net assets

• A provision for irrecoverable debts is used to account for the debts that are unlikely to be paid

• Non-current assets are depreciated to give a realistic net book value

• Irrecoverable debts are written off if it is unlikely that the business will be able to retrieve the money