Accounting Concepts and Conventions — Flashcards

Answer

Accounting concepts are the basic assumptions, rules, and principles used as the basis for recording business transactions and preparing accounts. They include Business Entity, Money Measurement, Goin…

Answer

Accounting conventions are common practices followed in recording and presenting accounting information. They have developed through regular use and help make financial statements uniform and comparab…

Answer

The Business Entity Concept assumes that the business enterprise and its owners are two separate entities for accounting purposes. So, business transactions are recorded from the point of view of the …

Answer

Because under the Business Entity Concept, the owner and the business are treated as separate entities. The money brought in by the owner becomes capital, which is a liability of the business to the o…

Answer

Drawings are cash or goods withdrawn by the owner for personal use. They are not business expenses because they are private withdrawals, not costs of running the business.

Answer

It should be recorded as drawings, not as business expense. The withdrawal reduces business assets, but it does not become an expense of the business.

Answer

The Money Measurement Concept states that all business transactions must be recorded in terms of money, using the currency of the country. In India, transactions are recorded in rupees.

Answer

They are not recorded because they cannot be measured in money, even though they may affect profit and loss. The Money Measurement Concept records only facts that can be expressed in monetary terms.