Theory Base of Accounting Test - 20

1. Small firms basically deal with transactions of low amount. There is no need for them balance sheet. They are satisfied by recording day to day transactions. Hence they follow journal system.
   
2. On the other hand, bigger firms deal with large transactions. Hence, they follow subsidiary system of accounting.
3. The  fundamental concept of accounting which is money measurement states that all accounting transactions must be measured in terms of money only. Hence, the basis for accounting is money measurement.
4.  Balance sheet represents the financial position of the company because it contains information about the assets, liabilities and capital of the company.

These are the fundamental concepts of accounting. 

Accounting concepts basically are the rules to be followed by a firm while preparing the financial statements. These concepts basically are going concern concept, accouting period concept, matching concept, accrual concept, etc.

Single entry system is the system of book keeping and accounting which relies only on one sided posting of transactions. It does not involve dual aspect as seen in double entry system. Hence, the term single entry is meant by the method of maintaining accounts which do not confirm to strict principles of double entry.

Double entry system operates on the basis of dual aspect concept which states that every transaction has a debit and its corresponding credit. Iuca pacioli invented this system and gave the rule as stated above . He was also follower of Leo da vinci.

Going concern concept states that the business will continue to carry out its operations without any stoppage. Valuation of assets and liabilities are important in every business and it changes as per marketing conditions. Hence, going concern concept is important for valuation of assets and liabilities as it gives correct market value of them.

Going concern concept states that business will be carried out continuously without any stoppage. Hence, it is the basis for several business transactions as the business is not going to dissolve.

1. The concept of business entity assumes that business has a distinct and separate entity from its owners.  It means that for the purposes of accounting, the business and its owners are to be treated as two separate entities.

Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded at two places. In other words, at least two accounts will be involved in recording a transaction.

The double-entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.

An accounting entity is an economic unit that isolates the accounting of certain transactions from other subdivisions or accounting entities. It provides information to the management for decision making. It may be the business unit itself or a defined part of business or an amalgamation of related business.