Theory Base of Accounting Test - 1

Explanation:

Consistency concept states that accounting principlea and methods should remain consistent from one year to another. These should not change from year to year, in order to enable the management to compare the Profit & loass account and Balance Sheet of different periods and draw important conclusion about working of the enterprise. Thus Straight Line method used in one year should be followed next year also.

Explanation:

Dual Aspect concept states that every business transaction is recorded as having a dual aspect. Thus everything firm owns i.e. assets of the firm will also be owed out to somebody that may be liabilities and capital. Thus Assets= capital + liabilities.

Explanation:

The IFRS refers to the Interantional Financial Reporting Standards' which are issued by IASB i.e International Accounting Standard Board.

Explanation:

Only those transactions and events are recorded in the accounting which are capable of being expressed in terms of money. An event, even though it may be very important for the business, will not be recorded in the books of the business unless its effect can be measured in  terms of money with a fair degree of accuracy. Thus appointment of Manager though important will not be recorded in the books of accounts as it cannot be measured in terms of money.

Explanation:

Over a period of time, a number of Generally Accepted Accounting Principles (GAAP) in the form of concepts and conventions have been developed and accepted to bring comparibility and uniformity in the financial statments of various business entities.

Explanation:

The proprietor is treated as a creditor of the business to the extent of the capital invested by him in the busniess. Thus we record the transactions between the business and its owner from the point of view of business i.e. capital is treated as liability of the business and any personal withdrawals are treated as withdrwal of capital or as good as payment is made to the owner.

Explanation:

According to Historical cost concept, assets are recorded in the books of accounts at the price at which it was acquired. As market value keeps changing and it is very difficult and costly affair to determine the market value of the assets every year. therefor assets are recorded at cost and not market value whether low or high.

Explanation:

As the busniess is intended to continue indefinitely for a long period, the true results of the business operations can be ascertained only when the busines is completely wound up. But ascertainement of profit after a very long period will be of little use to the proprietors. The users of financial statements need to know the results of the business at ferquent intervals. Thus, the entire life of the firm is divided into time-intervals for the measurement of the profits.

Explanation:

According to this concept, business is treated as a unit separate and distinct from its owners, creditors, managers, and others. In other words, the owner of a business is always considered as distinct and separate from the business he owns. business unit should have a completely seprate set of books and we have to record business transaction's from firm's point of view and not from the point of view of the proprietor.

Explanation:

According to prudence concept, all anticipated losses should be recorded in the books of accounts, but all anticipated or unrealised gains should be ignored. in other words it is the policy of playing safe. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty.