Accounting Prudence Concept - 1972 Words

conservation Prudence concept: revenue and profits are included in the balance sheet only when they are realized(or there is reasonable certainty of realizing them) butliabilities are included when there is a reasonable possibility of incurring them. Also called conservation concept. Du Pont analysis A type of analysis that examines a company s Return on Equity (ROE) by breaking it into three main components:profit margin, asset turnover and leverage factor. By breaking the ROE into distinct parts, investors can examine how effectively a company is using equity, since poorly performing components will drag down the overall figure. To calculate a firm s ROE through Du Pont analysis, multiply theprofit margin (net income†¦show more content†¦These costs are recorded in ledger accounts throughout the year and are then shown in the final trial balance before the preparing of the manufacturing statement accounting concept and conventions In drawing up accounting statements, whether they are external financial accounts or internally-focused management accounts, a clear objective has to be that the accounts fairly reflect the true substance of the business and the results of its operation. The theory of accounting has, therefore, developed the concept of a true and fair view. The true and fair view is applied in ensuring and assessing whether accounts do indeed portray accurately the business activities. To support the application of the true and fair view, accounting has adopted certain concepts and conventions which help to ensure that accounting information is presented accurately and consistently. Accounting Conventions The most commonly encountered convention is the historical cost convention. This requires transactions to be recorded at the price ruling at the time, and for assets to be valued at their original cost. Under the historical cost convention, therefore, no account is taken of changing prices in the economy. The other conventions you will encounter in a set of accounts can be summarized as follows: Monetary measurement | Accountants do not account for items unless they can beShow MoreRelatedAccrual, Prudence And Matching Concepts Of Accounting1085 Words   |  5 Pagessubject to the accrual, prudence and matching concepts of accounting. The accrual concept of accounting postulates that revenue income should be recognized when it is earned. Therefore, the fact that the cash settlement of the transaction in the case of MPI and CWR occurred later is immaterial. For instance, the sales agreement between the two parties pertaining to the mixer segment of the assembly line system was made on 14th September, 2014. According to the accrual concept, the revenue should beRead MoreThe Modern Business Environment1482 Words   |  6 PagesToday, Accounting is called â€Å"the language of business† because it is the source where all financial information comes from. However, Accounting is bas ed on certain rules which all accountants must adhere. These rules are based on the Accounting standards and Accounting concepts. They form the framework and are the guidelines for good accounting practices. However, at times the accounting concepts may clash with each other due to conflicting objectives. The problem lies in the accounting conventionsRead MoreImportance Of Iasb Conceptual Framework981 Words   |  4 PagesEssay Accounting The conceptual framework for accounting is a report of rules which demonstrate commonly established guidance for the evolvement of new reporting practices and for improvement of the already existing ones. The most recognisable and frequently used conceptual framework is invented in 1989 by the International Accounting Standards Board (IASB). (Financial accounting, p7 Pearson). The Conceptual Framework also discusses the question about the importance of characteristic of handfulRead MoreThe International Accounting Standards Board1341 Words   |  6 Pagesis a framework developed by the International Accounting Standards Board (IASB). In a nutshell, what this framework does is to lay out the concepts needed for accurate preparation and presentation of financial statements to external users such as auditors, tax authorities, investors, regulatory authorities and so on. According to the IASB, the Conceptual Framework for Financial Reporting does the following; â€Å"†¦describes the objective of, and the concepts for, general purpose financial reporting. ItRead MoreThe Role Of Financial Reporting On The International Accounting Standards Board1533 Words   |  7 Pagesby the International Accounting Standards Board (IASB) aims to set out the fundamental concepts in the preparation and presentation of financial statements (IFRS 2014). This essay will attempt to analyse the specific concept of prudence found in the qualitative characteristics chapter of the conceptual framework. Prudence has been omitted from the conceptual framework in recent years, and this essay will attempt to establish whether it is needed or not. The concept of prudence, in terms of financialRead MoreThe Relationship Between Ias 37 And Principle Of Accounting Prudence1188 Words   |  5 Pagesthe accounting for provisions, contingent liabilities and contingent assets. The use of this standard is inseparable from the principle of accounting prudence, however, some comments indicated that IAS 37 has undermined this principle and resulting in considerable volatility in the earning reports. This essay aims to explore the standard and discuss the relationship between IAS 37 and principle of accounting prudence and show my opinion of the comments above. Main Body The prudence concept, alsoRead MoreIasb Conceptual Framework And The Relevence Of Prudence1504 Words   |  7 PagesRELEVENCE OF PRUDENCE STUDENT ID: 51552932 Introduction The purpose of this essay seeks address what the International Accounting Standards Board (IASB) conceptual framework is all about as well as explores the issues for and against the inclusion of the prudence into the framework. Although, the prudence concept was expunged from the IASB conceptual framework in 2010 due to agreements on accounting principles convergence with the US standards operating body, Financial Accounting Standards BoardRead MoreFinancial Statements We See Nowadays Have Gone Through1506 Words   |  7 Pagesliabilities and contingent assets in accounts. Although, the IAS 37 may lead to a high volatility in retained earnings which resulted in the increasing in the usage of creative accounting unless the standard follows the prudence concept. Hence, in this essay, there will be discussions on the relationship between IAS 37 and prudence concept as well as the increasing in volatility in earnings that might lead by the IAS 37. Generally, IAS 37 is a standard that concern on how to recognize provisions inRead MoreThe Accruals And Going Concern Concepts1443 Words   |  6 Pagesï » ¿The accruals and going concern concepts are regarded as fundamental in the preparation of financial statements. Discuss the advantages and disadvantages of these concepts, explaining the reasons why these concepts may be difficult to apply or may be inconsistent with other concepts. Accounting statement and records are a periodic summary of account activity within a period and the documentations involved in the preparation of it (Thomas and Ward, 2012: 4). They are done based on a set of rulesRead MoreThe Main Components Of Financial Statements And The Processes Used By A Large Company1488 Words   |  6 Pagesmanner. They provide business stakeholders both inside and outside a clear picture of the current financial standing of the business enterprise. Preparing these financial statements in not an easy task and requires professional judgement so prudence is a key accounting principle which makes sure that assets and income are not overstated and liabilities and expenses are not understated. Most businesses produce three major financial statements, including the income statement, balance sheet and cash flow