Question

1
01:18:13
SUBMIT
27/30
01:31
SECTION A
SECTION B
SECTION C
I
Identify the concept/convention principle
followed / not followed in this case. Give
reasons:
The cost of a calculator for 500 is charged to
Revenue and not an asset although its useful
life is extended to more than one year?
[1 mark]​

Answer 1

Answer:

Accounting is both a science and an art. And just like all other streams of science, even in accounting certain rules are followed. Also, accounting is based on certain assumptions as well. We call these accounting concepts or accounting concepts and principles. Let us study accounting concepts and applications in brief.Accounting Concepts and Conventions

Financial Accounting both practical and theory-based is built on some accounting principles. There are some accounting equations that support these too. And these accounting principles are built on a few assumptions that we call accounting concepts. These thirteen accounting concepts find wide acceptance across the world by accounting professionals and auditors.

This accounting concept separates the business from its owner. As far as accounting is concerned the owner and the business are two separate entities. This will help the accountant identify the business transactions from the personal ones. All forms of business organizations (proprietorship, partnership, company, AOP, etc) must follow this assumption.

So for example, if the owner brings in additional capital into the business, we will treat this as a liability on the balance sheet of the business.

2] Money Measurement Concept

This accounting concept states that only financial transactions will find a place in accounting. So only those business activities that can be expressed in monetary terms will be recorded in accounting. Any other transaction, no matter how significant, will not find a place in the financial accounts.

So for example, if the company underwent a major management overhaul this would have no effect on the accounting records. This concept is actually one of the major drawbacks of accounting.