Theory Base of Accounting Test - 21

Realisation being one of the fundamental principle of accouting states that revenue is recognised by the seller when it is earned irrespective of whether the cash from the transaction has been received or not. It implies legal liability to pay by the user, buyer as well as the customer to whom the goods and services has been provided.

Realisation being one of the fundamental principle of accouting states that revenue is recognised by the seller when it is earned irrespective of whether the cash from the transaction has been received or not. It is also known as revenue recognition concept. The main advantages of this concept are:

Every firm prepare its financial statements for a particular period of time. This period is called as accounting period. 

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.

Objective evidence concept states that the financial statements of a firm should be based on solid evidence. It should not contain any error. All entries must be correct and must be determined as a evidence of the transactions recorded. Hence, all accounting entries must be based on objective evidence concept.

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.

The duality principle is commonly expressed in terms of fundamental Accounting Equation, which is as follows : 

Assets = Liabilities + Capital

Accrual Accounting is the base of present accounting. It is also known as the mercantile system of accounting, wherein the transactions are recognised, as and when, they take place. 

Under this method, the revenue is recorded when it is earned, and the expenses are reported when they are incurred.

Objective evidence concept states that the financial statements of a firm should be based on solid evidence. It should not contain any error. All entries must be correct and must be determined as a evidence of the transactions recorded. It must be verifiable, reliable and must be absence of any bias.

A historical cost is the measure of the value used in accounting in which the price of an asset in the balance sheet is based on its original cost when acquired by the company. It is one of the four basic accounting principles. It does not reflect true value of the asset. As accounting consists of recording the original value when the asset is purchased, it is a historical record of the transactions of a business entity.

Materiality being the fundamental concept of accounting states that all important matters of the firm must be disclosed. Items which are important for the firm are called material items. Hence, materiality means relative importance.