Essay writing

An appreciation of accounting concepts of financial accounting is essential to the preparation , understanding and interpretation of financial statement. Accounting concepts were defined as “broad basic assumptions that underlie the periodic financial statements of business enterprises” by early UK accounting standard. Among the numerous of concepts, there are two specifically regarded as fundamental in the preparation of financial statements. They are the accruals concept and the going concern concept. In this essay, I will deeply analyze the advantages and disadvantages of these concepts, and explain the reasons why these concepts may be difficult to apply or may be inconsistent with other concepts. Firstly, I am going to analyze the advantage of the accruals concept. The accruals concept is concerned with allocating expenses and income to the periods to which they relate ( A. Thomas & Anne Marie Ward, 2012:67) For example, revenues should be recognized once they are incurred instead of the related cash is received. The first advantage of this concept is that it can provide useful information to users of financial statements as it identifies deferred income, prepayments and accrual expenses. It highlights future commitments to pay cash in the future and resources that represent cash to be received in the future( A. Thomas & Anne Marie Ward, 2012:67). For instance, when calculating the electricity expenses, if the company has only paid for half year, but under the accruals concepts, the firm will still record the whole year expenses in the income statement. Therefore, the firm can avoid underestimating expenses by applying accruals concept.
The other advantage is that implementing the accruals concept can improve the reference value of cost information to enhance decision making, strengthen budget discipline and can through a complete balance sheet to illustrate the long-term government financial stability. According to an OECD Asian Senior Budget