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European Sham

The Seven Fundamental Accounting Principles

In any language there are some rules or principles that are definite and some others are indefinite.  The latter are a matter of opinion or style.  Accountants have different opinions, just are grammarians have different opinions.  Accounting principles evolve to form the underlying basis for good accounting practice. In this article, I will try to describe the elements of good accounting practice, the fundamental accounting concepts.

Here is a list of the seven fundamental accounting concepts.  What is the meaning of each?

(1)  Dual Aspect Concept

(2)  Money Measurement Concept

(3)  Business Entity Concept

(4)  Going-concern Concept

(5)  Cost Concept

(6)  Accrual Concept

(7)  Realization Concept

Dual Aspect Concept

The fact that the total assets of a company always equal the total equities underlies what is called the dual aspect concept.  Obviously, the two aspects that this concept refers to are assets and equities. The concept states that these two aspects are always equal to each other.

The dual aspect concept is the first of the seven fundamental accounting concepts.  The equation that states the dual aspect concept:  assets = equities or equities = liabilities + owners' equities, therefore, another form of the dual aspect principle is: Assets = liabilities + owners' equities.

Money Measurement Concept

Accounting records show only facts that can be expressed in monetary terms. By reducing disparate facts to monetary terms we can deal with them arithmetically.

In adding together homogenous names as different cars, bed linens, supplies, shoes, etc., it is necessary to express them in homogenous unit.  For this reason, it is necessary that each of the items enumerated is measured in monetary terms or in dollars.

The fact that a company has a lot of money or heavily in debt is a fact that could be determined by reading a balance of a company.

Business Entity Concept

Accounts are kept for business entities as distinguished from the person(s) associated with those entities.

For example, Mr. Smith as owner of Nursery and Kids Bedding Company withdraws $1,000 from the business.  In preparing financial accounts for the said company we should record the effect of this transaction on the business.  Mr. Smith exchanges $1,000 of owners' equity for $1,000 in cash.  Mr. Smith is just as well off after this transaction.  What about the business?  It now has $1,000 less in asset.

A business may be organized under any of several legal forms, such as a corporation, partnership, or unincorporated proprietorship.  This concept applies regardless of the legal status.

Going-concern Concept

The accounting principle according to which we normally assume that a business will continue for an indefinite period and is not about to be sold is called the going-concern concept. Properties are recognized at cost without regard to the change in their market values in succeeding periods because the business is expected to continue operating indefinitely.

For example, a luxury bed ensemble could be purchased at $150 in another store, but the business purchased it at $155.  It should be recorded at $155 which is the amount exchanged at the time the asset was acquired.

Cost Concept

Assets are ordinarily entered on the accounting records at the price paid to acquire them.  The going concern concept and the difficulty in determining market value objectively require us to value assets at their cost.  Evidently, the going concern concept is one reason for the cost concept.

Accrual Concept

Under this concept, income is measured as the difference between revenues and expenses rather than the difference between cash receipts and disbursements.  Most of the difficult and controversial problems in accounting arise in measuring the revenue and expenses for a specified period of time i.e., in applying the accrual concept.

For example, Beach Towels Market borrowed $15,000 from a bank.  As a result of this transaction, cash increased, the owners' equity did not change.  Therefore the receipt of cash was not associated with revenue.

On January 4, Beach Towels Market purchased $20,000 worth of inventory, paying cash.  After this transaction, cash decreased, owners' equity did not change.  Thus the disbursement on January 4 was not associated with an expense.

On January 8, merchandise costing $6,000 was sold for $9,000, the customer agreeing to pay within 30 days.  This transaction resulted in no change in cash.  Revenue was $9,000.  This revenue was not associated with an increase in cash at the same time.

Evidently, revenues and expenses are not always accompanied at the same time by increases or decreases of an equal amount of cash.  Increases or decreases in cash are changes in an asset.  Revenues or expenses are changes in equity. An increase or decrease in cash is not always associated with an equal amount of revenue or expense.

Net income is measured by the difference between revenues and expenses rather than the difference between cash increases and decreases.  This principle is called the accrual concept.

Realization Concept

Revenue is recognized at the time that it is realized – that is, when goods are shipped or services are rendered to the customer.  This concept tells us when to recognize revenue.

For example, Bed Linens Company manufactures quality bed linens in June.  It receives an order from Quilts & Shams Retailer for sheet sets in July. Bed Linens Company ships the sheet sets in July. Quilt & Shams Retailer pays the bill in August and sold the sheet sets in September.  Bed Linens Company would recognize revenue in July.

Revenue is realized when a sale is consummated through the delivery of goods or services.  Because of this, the word "sales" is sometimes used as a synonym for revenue, and sometimes you will see the phrase "sales revenue."

 

 

About the Author

PureComfortLinens.com, the ecommerce outlet of Vicera Enterprises, Inc., a duly registered corporation, offers a wide variety of high quality bedding and accessories for every bedroom in your house. It carries simple and colorful linens, stylish bedspreads, conventional comforters with self corded edge finish, etc., balmy pillows, beautiful pillow cases and other bed accouterments. We have been providing consumers with durability and comfort at reasonable prices.

hopefully theyl do it?

its always a 'Hard Luck' story when it comes to our game, our National side always 'nearly' make it, the old firm are normally just unlucky and Portos cheating in Seville with Celtic was just a true sham

hopefully the Scottish team tonight will break that and bring the trophy, and some european success to Scotland

I hope they'll do win the UEFA Cup. Imagine what it'll do for tourism in Scotland!

Nikki labels the European Citizen's Initiative "a sham of democracy"

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