Theory Base of Accounting Test - 67

According to business entity concept , the unit or entity so identified is treated different and distinct from its owner. And we record the transactions from the point of view of business . so accordingly owner is treated as creditors and any capital contributed by him is liabilty for the suiness. similarly Proprietor's private expenses are treated as drawing, it is as good as withdrawal of capital and Life insurance premium is treated as drawing as it is on the personal life of the owner and business will not receive any benefit when the owner dies it will be received by the family of the owners.That is why all three options are correct.

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.

According to the concept of prudencee all anticipated losses should be accounted for and all anticipated profits should be ignored. So the inventory is valued at market price or costs whichever is lower. Thus valuing inventory at market price which is higher than the costs is violation if prudence concept.

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.

Accrual concept recognizes revenues and expenses when they are earned or incurred, irrespective of the timing of cash flows. This principle provides a more accurate picture of a company's financial position and performance.

Accounting Statndard is a selected set of accounting policies or broad guidelines issued by an accounting body, regarding the principles and methods to be chosen out of several alternatives. They are norms and not accounting concept as concept is logical consideration and a notion which is generally and widely accepted.

Single Entry System of book- keeping in which, as a rule, only records of cash and of personal accounts are maintained; it is always incomplete double entry system. That is why it ignores Dual aspect of double entry accounting system.

An event though may be very important for the business, will not be recorded in the books of business unless its effect can be measured in terms of money with a fair degree of accuracy. Thus the above transaction cannot be recorded in the books of accounts.

Accounting standards are written statements issued by institutions of accounting professionals (such as regulatory bodies or standard-setting organizations) from time to time. These standards specify uniform rules and guidelines for drawing up financial statements, ensuring consistency, comparability, and transparency in financial reporting across different organizations.

The balance sheet provides a snapshot of a company's financial position at a specific point in time, showing its assets, liabilities, and owner's equity.