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SS2: FINANCIAL ACCOUNTING - 2ND TERM

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These are the bases, rules, and conventions adopted in preparing and presenting financial statements. They are also specific accounting bases, rules, and procedures selected and consistently followed by a business enterprise as being in the opinion of the management, appropriate to its circumstances.

Characteristics of a Good Financial Report

(i) Fairness: The fairness principle requires that accounting report should be prepared in such a way that it will not favour any group in society.

(ii) Understandable: This principle states that financial information must convey information that has meaning to the users.

(iii) Completeness: All material transactions of the organization should be recorded so that users can have a full picture of its position.

(iv) Relevance: The information presented by the financial report must serve and satisfy the needs of all the users.

(v) Timely: The financial statements should present on up to date information and not outdated news. It must show regularity.

(vi) Reliable: The Information presented in the report can be relied on as the accurate description of the transaction of the enterprise and show a true and fair view.

(vii) Objectivity: This principle ensures that the information presented must be free from bias and must not be subjective. There must be an independent judgment on the part of the accountant.

Evaluation Questions

1. List five (5) Accounting Concepts

2. Explain four (4) Accounting Concepts

3. Explain the following concepts and convention:
(a) Money measurement
(b) Business entity
(c) Going concern
(d) Realization
(e) Materiality (WASSCE JUNE, 2005)
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Question 5

  1. Explain the following concepts and convention:

(a) Money measurement

(b) Business entity

(c) Going concern

(d) Realization

(e) Materiality (WASSCE JUNE, 2005)

Solution

(a) Money Measurement: This is the assumption that accounting records will be concerned with only those events which can be measured or expressed in monetary terms.

(b) Business Entity: This is the assumption that the affairs of a business will be treated as being quite separate from the non-business activities of its owner.

(c) Going Concern: This is the assumption that a once set-up or established will continue to operate well into the foreseeable future.

(d) Realization: This is the assumption that profit shall be taken to have been earned only when the transaction leading to it has been duly concluded and ascertained. Or Profit occurs only when goods have been delivered or services rendered and the buyer or beneficiary has accepted the responsibility to pay for them.

(e) Materiality: This is a convention that emphasizes the significance, verifiability, and sizeability of income and expenses. It states that only those items in the account that are significant and likely to affect the view given by the financial statements should be disclosed.

 
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