When Keith came up with his grades in Accounting, I was shocked to see his score. Not only did I get furious but also wondered what must have gone wrong with a scoring subject such as Accounting.
“The highest score is 76 on 100. I have managed to score 67, aren’t you happy?”
“76 are the highest? Are you joking? Who gets 76 in accounting?You must get not less than 85. (If I manage to think that the theory has gone wrong) otherwise, I see no reason for it to go wrong.”
I realised it was high time that Keith received some accounting help. I also assumed that if a class gets a most senior of 76 in accounting, there must be some concepts that they haven’t got it right.
So here I am pulling all that it takes to understand the concepts of accounting-
Before heading towards making students like you understand the central ideas, it is imperative to learn the conceptual issues that will help you develop a firm groundwork for accounting. Put a tick mark on the concept that we are here to discuss. Whether you are a student of UC Berkley or Columbia University, or some other place, you need to know these basics. If you already know them Bravo, you are good to go.
What Do You Know About Accruals Concepts?
“Revenues are recognised when earned, and expenses are recognised when the assets are consumed, am I right?”
Keith is right. So what happens is a business recognising sales, profits and losses amount by cash received or cash paid. These concepts are used in the financial statement, and auditors approve of these entries when done using accrual concept.
How About Conservatism Concept?
“Well, it means revenues are recognised when there is a reasonable certainty that it will be realised, while expenses are recognised early when it is understood that there is a reasonable possibility that it will be incurred.”
Bravo Keith. You are doing well. For example, if there are receivables to come, 3 % bad debt must be kept owing to the historical trend lines, on the other hand, due to the staff leaning towards, 6% will be saved as a drop in sales and thus will be held as doubtful debts.
What Do You Think Conservatism Concept And Consistency Concept?
“When it comes to conservatism concept it is the revenues that are recognised if there is a reasonable certainty that it will be realised.”
Right, the expenses are to be recognised sooner if there is a reasonable possibility that it will be incurred.
“Keith, consistency concept chooses a specific accounting method. It helps in comparing the financial statements over a period.”
“Yeah, I get that.”
The Economic Entity Concept
Primarily in a business, what is for business remains for business? There cannot be a combination of personal expenses and business expenses together.
For instance, if there is an expense on a business trip to fix a meeting with your export to London, it remains an expense in the financial statements. But if you are out to London for a vacation, it surely does not find its place in the economic entity concept.
For New Accounting Students, The Going Concern Concept Must Have Been The Easiest!
Yes, you are right. The financial statements are based on the assumption that the business is going to operate for a longer duration of time. If the business doesn’t, all the expenses recognition comes in the current period and no accrued concepts stand implied then.
Matching Concepts Must Be Understood Clearly
The word ‘matching’ itself states how the expenses and the revenue related to it should be recognised in the same period. It is done to see there is no deferral of expense recognition. It makes the opponent know that there exist no unrecorded transactions.
“I am very particular about this aspect. This is the foremost thing our professor made us understand”.
“I am glad Keith that you have got these concepts right.”
Material Concepts Cannot Go Unnoticed.
Whatever be the transactions, it must be recorded.
By Now The Concepts Are Known Thoroughly.
Let us now concentrate on the central concepts of accounting theory. There are mainly four concepts to it.
“Are you aware of it Keith?”
“Not really. Can you help me know that? “
The First Concept Is The Concept Of Transaction
What is transaction after all? It is an exchange of assets between the entities for another of the same entity. Therefore remember the equation-
Assets = Liabilities + Owner’s Equity
“This is difficult. What do I do if it comes as part of the homework?”
“It’s simple, get Accounting Homework Solutions from seniors, professors or even online education portals. They help you perform the assignments with utmost precision.”
The Second Concept Is The Accounting Period Concept:
It means the period along which the financial statements must be prepared.
Now here the fun begins.
Income statement and cash flow statements are amounted and recorded during the accounting period. While the balance sheets showing assets and liabilities are the final moment of the accounting period.
Professors are fond of this concept and hence give College Accounting Homework based on this. You got to crack them to understand it well.
The Third Concept Is The Realization Concept:
It means that the revenue is recognised only once when the underlying goods or services are associated with the income has been delivering. The idea is that the income is recognised only when there is an earning from it.
“I find it difficult when it comes to College Accounting Homework.”
“It is this reason that you must have lots of practice and get your concepts clear.”
The final central concept and talked about is the concept of full disclosure
Full disclosure necessarily means to disclose all the useful summaries, classification, aggregation and explanations relating to the fair view of the activities of the business. It helps the reader to know about the company well. It is this reason that there are schedules and notes included in the financial statements of the company.
Many assignments are given based on this concept. If you can get Accounting Homework Solutions right, there is no looking back no matter which reputed board you are from, be it New Jersey Department of Education or somewhere else.
There are many like Keith who is struggling hard to get their concepts clear on accounting. If you have got all the concepts right in the above, you are good to go. But if you haven’t, it is time to take Accounting help!