Concepts, Bases and Policies
Ms Marshall 5th Year Accounting
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 80%
of the accounting paper is based on
financial accounting. The remaining 20% is
management accounting.
 On the exam Sections 1 & 2 are financial
accounting and Section 3 is management.
Ms Marshall 5th Year Accounting
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 By
the end of Chapter One of your textbook,
you should be able to:
 Understand the objectives of financial
information
 List and explain the different users of
financial information.
 List and explain the four fundamental
accounting concepts.
 List and explain other accounting concepts.
 Distinguish between an accounting base and
an accounting policy.
Ms Marshall 5th Year Accounting
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

Financial accounting
focuses on past events.
Past transactions are
recorded to show the
performance and
financial position of a
business during an
accounting period.
Financial Statements
consist of: A trading
account, a profit &
loss a/c, a balance
sheet and a cash flow
statement.
Ms Marshall 5th Year Accounting
Financial Accounting
Objectives:
 To provide
information for the
purpose of assessing
the organisation and
making decisions.
 To meet the rules
and regulations as
laid down by
accounting regulatory
bodies.

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 Management
Accounting is concerned with
the future financial decisions as well as past
transactions.
 It provides information so that the
organisation can plan, control and make
decisions.
Ms Marshall 5th Year Accounting
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 Who
do you think would be interested in
financial information? Why?
Ms Marshall 5th Year Accounting
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

Going Concern: when
preparing accounts it is
assumed the business will
continue in its present
form for the foreseeable
future, i.e. they are not
going into liquidation.
Accruals: This means that
all items of income and
expenditure that belong
to a given accounting
period must be included
in the financial
statements regardless of
whether they are paid or
not.
Ms Marshall 5th Year Accounting


Consistency: This means that
accounting items must be
treated in exactly the same
way from one accounting
period to the next. This
enables the business to
compare like with like.
Prudence: When preparing
accounts, caution should be
exercised. This means that
losses can be anticipated but
gains cannot. The prudence
concept overrides the accruals
concept in cases where they
may clash.
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Entity: the business exists in its own right. The
capital of a business is owed to the owners.
 Money measurement: items included must have
monetary value.
 Realisation: profit is earned when
goods/services are sold to consumers.
 Double Entry: for every debit there is a
corresponding credit.
 Period of Account: consistent length of
accounting period.
 Objectivity: accounts prepared without any
personal bias and figures are backed up with
documents.

Ms Marshall 5th Year Accounting
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 There
are different procedures and policies
for preparing accounts. The different ways
in which items can be treated are known as
accounting bases. E.g. depreciating using the
straight line method or the reducing balance
method.
 When a firm decides which base they are
going to use, this becomes the accounting
policy of the firm. These are included in the
notes to the accounts.
Ms Marshall 5th Year Accounting
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