The accounting concepts are rules and guidelines which the accountant follows and uses when deciding between differing options to make. They help to ensure the accounting information is presented accurately and consistently. All formal accounting statements should be created, preserved and presented according to the concepts and conventions’. The following will look at each of the concepts and conventions and relate them to the profit and loss account for a sole trader. GOING CONCERN
This concept assumes a business will continue to trade year on year and will not go broke unless there is a reason to the contrary. This has important implications when valuing the businesses assets and liabilities. In the accounts produced the fixed assets are valued at their original value. This is because their cost can be verified and is objective. This is more sensible that a market or personal valuation which can be subjective. If the business where to sell their assets quickly in the event of winding up the business they may not be worth anything second hand or in the event of being sold quickly. This is an example of going concern is practice. The business will value its fixed assets at the original costs partly basing its decision on the business continuing to trade. BUSINESS ENTITY
A sole trader can be held legally responsible for any and all debts that the business holds if the business cesses to trade. The business entity convention is in direct contradiction to this. It seeks to ensure the private transactions and matters relating to the owners of the business are segregated from transactions relating to the business. Our sole trader has bought a vehicle for business use and recorded it in their accounts. This can be done if the vehicle is predominately used for business use; however, if the car is used predominately for the owners use they would not be able to charge it to the business. Personal use should be kept separate from the...
Bibliography: Geoff, J. (2001). Accounting Concepts and Conventions. Retrieved April 30th, 2010, from Tutor2u: www.tutor2u.co.uk
Ireland, J. (2005). Principles of Accounting. Retrieved April 30th, 2010, from www.principlesofaccounting.co.uk
Williamson, D. (2001, September 3rd). Accounting Concepts and Conventions. Retrieved April 30th, 2010, from Duncan Williamson: www.duncwil.co.uk
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