Accounting Equation Effects Test 26

Accounting Equation means , every transaction will have two  affects. For every debit there will be a credit and vice versa. 

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 best application of this aspect is the Accounting Equation, i.e., Assets = Liabilities + Capital.

Business Entity Concept states that the business man is separate from the business. Thus, the amount invested by the owner in the business is known as the capital and is liability for the business. This is a universal to all the forms of business whether it is sole proprietorship, partnership firm or a joint stock company.

On sale of equipment, the assets are moving out of the business against which cash is received. This will affect as reduction in fixed assets and increase in cash. 

The accounting information provided by the financial statements would be useful in drawing conclusions regarding the working of an enterprise only when it allows comparisons over a period of time as well as with the working of other enterprises. 

An accounting year is a period of time, usually 12, during which businesses calculate their accounts and organize their financial activities. The accounting year, also known as the accounting period, occurs usually on any date other than January 1st to December 31st and its also called a financial year and the calendar year.

Income is measured as per the matching Concept. It states that only those incomes should be recorded in the books of accounts that are matched with the respective expenses and that belongs to the current accounting year.

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.

For example, Provision for doubtful debt is created in anticipation of bad debts etc.

The cost concept requires that, all assets are recorded in the book of accounts at their purchase price.

Going Concern Concept is an accounting principle which states that the operations of the business will not stop in near future and the business will continue to operate,
Therefore, Fixed Assets are not written off after a year and they are depreciated on the basis of expected life rather than on the basis of market value due to going concern concept only.