Accounting Principles Assignment
North South University
Act 201 Assignment Semester : Summer - 2010 Date Of Submission : 08 - 08 – 2010 Name : Saif Uddin Siddique I D : 102 0610 0 3 0 Faculty : Mdm Section : 03
Question No. 1 :
Explain using various examples,how the major accounting concepts are used in preparing financial statements.
Answer : There are several accounting concepts that are used by the accountants worldwide in preparing financial statements.Using these principles one can prepare a fair and accurate financial statement for a period that would reflect the true condition of the business. Among all the accounting principles,there are some very important fundamental concepts.Those major accounting concepts are : 1 ) Historic Cost Principle 2 ) Accruals Concept 3 ) Prudence Concept 4 ) Consistency Concept 5 ) Materiality Concept The use of these concepts in preparing financial reports are discussed below.
1 ) Historic Cost Principle : According to historic cost principle,all the assets have to be valued on the basis of the historic costs,that is,their original purchasing prices.For example,if an asset is bought on 1st January 2010 with a price of $1000 and the very next day on 2nd January 2010 the price changes to $1200,the historic cost will still remain $1000,and it will never change.The valuation of the asset will always be made on the basis of it’s purchasing price,that is,$1000. According to this concept,we cannot modify or change the historic cost of an asset.While preparing financial statement of a business,We apply this principle by showing the original prices of fixed assets and current assets in the
Act 201 Assignment Semester : Summer - 2010 Date Of Submission : 08 - 08 – 2010 Name : Saif Uddin Siddique I D : 102 0610 0 3 0 Faculty : Mdm Section : 03
Question No. 1 :
Explain using various examples,how the major accounting concepts are used in preparing financial statements.
Answer : There are several accounting concepts that are used by the accountants worldwide in preparing financial statements.Using these principles one can prepare a fair and accurate financial statement for a period that would reflect the true condition of the business. Among all the accounting principles,there are some very important fundamental concepts.Those major accounting concepts are : 1 ) Historic Cost Principle 2 ) Accruals Concept 3 ) Prudence Concept 4 ) Consistency Concept 5 ) Materiality Concept The use of these concepts in preparing financial reports are discussed below.
1 ) Historic Cost Principle : According to historic cost principle,all the assets have to be valued on the basis of the historic costs,that is,their original purchasing prices.For example,if an asset is bought on 1st January 2010 with a price of $1000 and the very next day on 2nd January 2010 the price changes to $1200,the historic cost will still remain $1000,and it will never change.The valuation of the asset will always be made on the basis of it’s purchasing price,that is,$1000. According to this concept,we cannot modify or change the historic cost of an asset.While preparing financial statement of a business,We apply this principle by showing the original prices of fixed assets and current assets in the