FINANCIAL AND MANAGEMENT ACCOUNTING

FAQS – UNIT 2

1. What are the 5 accounting concepts?

There are five basic concepts:
 Business entity concept (separate entity concept)
 Going concern concept
 Money measurement concept
 Periodicity concept
 Accrual concept

2. What is the separate entity concept?

In separate entity concept, business is a separate entity and it is different from the
owner and the proprietor.
(Ex—if X starts is a business; he should not mix up his personal properties with of
that of the business.)

3. What is the going concern concept?

This concern concept says that the business entity will continue fairly for a long
time to come.

4. What is the money market concept?

It says that all transactions of a business are recorded in terms of money. An
event or a transaction that cannot be expressed with the money terms cannot
find place in the book of accounts.

5. What is the periodicity concept?

It is the time interval for which accounts are prepared, even though we assume
long life for a business.

6. What is accrual concept?

Profit earned or loss suffered for an accounting period is the results of both cash
credit transaction. It is possible that certain incomes are earned but not received
and similarly expenses incurred but not yet paid during an accounting period.

7. What is dual aspect concept?

Every business transaction has a dual effect. Eg. If a proprietor invests
Rs1,00,000 two accounts are affected, cash (asset) a/c and capital account.

8. What is cost –attach concept?

These costs have a capacity to ‘merge ’ or attach when they are brought
together. The proportionate raw-material costs, labour costs, and other
overheads are added together to obtain product costs so as to increase the
utility of cost data.

9. What is accounting convention?

 Conventions are customs or traditions guiding the preparation of accounting
statements. Convention of Disclosure, Convention of materiality, Convention of
consistency and convention of Conservatism are the types of Convention.

10. What are the basic principles of accounting?

Principles of income recognition, principles of expense, principles of matching
cost and revenue, historical cost principle, principle of full disclosure, double
aspect principle, modifying principle, principle of materiality, principle of
consistency and principle of conservatism.

11. What is accounting standards?

It is a select set of accounting policies or broad guidelines regarding the
principles and methods to be chosen out of several alternatives.

12. What is IFRS?

International Financial Reporting System is standards, interpretations and
framework for the preparation and presentation of financial statements. It is
framed by International Accounting Standards Board.