Theory Base of Accounting Test - 30

Realizable value is the net amount of money that you will to get from selling one of your assets. In other words, realizable value is equal to the sale price of an asset less any applicable fees. Notice this has nothing to do with the fair market value of the asset being sold. In this question the company is following realizable cost method of valuation as old car is reported in the financial statements at market value.

There are two methods of accounting on the basis of business transactions are recorded i.e. cash system and accrual system.

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 concept of money measurement states that only those transactions and happenings in an organisation which can be expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc. are to be recorded in the book of accounts. 

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.

Main objective of accounting standards is to make financial statement more meaningful and comparable. Accounting standards provides a standards set of accounting policies, procedures, valuation methods and disclosure requirements on the basis of which financial statements are prepared.

There are two methods of accounting on the basis of business transactions are recorded i.e. cash system and accrual system.

Accounting standards are written statements of uniform accounting rules and guidelines or practices for preparing the uniform and consistent financial statements and for other disclosures affecting the user of accounting information. The Institute of Chartered Accountants of India, (ICAI), which is the regulatory body for standardization of accounting policies of the country has issued Accounting Standards which are expected to be uniformly adhered to, in order to bring consistency in the accounting profession.

The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period  in which revenues and expenses are recognized. 

According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received.

Hence, the revenue is generally recognized at the time of sale.

Main advantages of accounting standards are set to make financial statement more meaningful and comparable. Accounting standards provides a standards set of accounting policies, procedures, valuation methods and disclosure requirements so that transparency, consistency and comparability will be followed while preparing the financial statements.