Theory Base of Accounting Test - 23

As per the convention of disclosure, accountant should show the correct information in the book of account. Same information should be disclosed by him. In window dressing, accountant or businessman changes the information in accounting records for getting benefits from outside parties. So, as per convention of disclosure, it should be prohibited.

Accounting has concepts of Matching, Dual aspect and Going concerned but there is no concept of true and fair concept.

The concept of conservatism (also called ‘prudence’) provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe. 

The concept of conservatism requires that profits should not to be recorded until realised but all losses, even those which may have a remote possibility, are to be provided in the books of accounts.

The concept states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.  

The concept of conservatism (also called ‘prudence’) provides guidance for recording transactions in the book of accounts and is based on the policy of playing safe. 

The concept states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.  

The concept of conservatism requires that profits should not to be recorded until realised but all losses, even those which may have a remote possibility, are to be provided in the books of accounts.

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. Keeping this in view, when a person brings in some money as capital into his business, in accounting records, it is treated as liability of the business to the owner. 

As per the convention of disclosure, accountant should show the correct information in the books of accounts. The same should be disclosed by him. In window dressing, an accountant or businessman changes the information in accounting records for getting benefits from outside parties. So, as per convention of disclosure, it should be prohibited.

The conservatism principle is the general concept of recognising expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received. Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend towards recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain.

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 separate Entity Concept states that a businessman is separate from the business. Because of this principle, the amount which the owner invest into the business is known as capital and when the owner withdraws some amount from the business it is known as the drawings.

Mercantile basis of accounting is also called as accrual basis of accounting.