Core concepts
- 01Accounting: process of identifying, measuring, recording and communicating financial info.
- 02Going concern: entity will continue for the foreseeable future (typically 12 months).
- 03Accrual basis: revenue/expenses recorded when earned/incurred, not when cash flows.
- 04Consistency: same accounting policies applied period to period unless change is justified.
- 05Prudence: anticipate no profit, but provide for all probable losses.
- 06Materiality: items significant enough to influence decisions must be disclosed.
Flowchart
Accounting Concepts | +-- Going Concern ----> entity continues +-- Accrual --------> earned / incurred +-- Consistency ----> uniform policies +-- Prudence -------> conservatism +-- Materiality ----> disclose if relevant
Exam-critical pointers
- ⭐AS-1 disclosure of accounting policies is a 4-mark theory favourite.
- ⭐Distinguish fundamental assumptions (going concern, consistency, accrual) from conventions.
- ⭐Substance over form: record economic reality, not legal form (e.g., hire purchase).
- ⭐Money measurement concept excludes qualitative factors (employee morale, brand loyalty).
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