Course Content
New Accounting Model (Exam-2009)
Books references: 1. Account Code (Volume III). 2. Chart of Accounts (Issued by CGA). 3. Manual Accounting Principles. 4. Accounting Policies and Procedures Manual.
Private: DAO Part-I Examination 2024 (Fresh Candidates) Past Papers
About Lesson
Q.5 Define the following terms:-
i- Accounting Principles.
ii- Going concern.
iii- Accruals
Iv- Consistency
V- Prudence
Vi- Relevance
Vii- Reliability
Viii- Comparability
Ix- Understandability


Certainly! Let’s define each of these terms:

  1. Accounting Principles:

    • Accounting principles are the rules and guidelines that companies and other bodies must follow when reporting financial data. These rules standardize the terms and methods used by accountants, making it easier to examine financial data. The most widely used set of accounting principles is the International Financial Reporting Standards (IFRS), while the United States follows generally accepted accounting principles (GAAP).
  2. Going Concern:

    • Going concern refers to a company that has the resources needed to continue operating indefinitely until evidence suggests otherwise. It signifies a company’s ability to generate enough revenue to stay afloat or avoid bankruptcy. If a business is not a going concern, it means it has gone bankrupt and its assets were liquidated.
  3. Accruals:

    • Accruals are revenues earned or expenses incurred that impact a company’s net income on the income statement, even though cash related to the transaction has not yet changed hands. They ensure that financial statements accurately reflect a company’s true financial position, considering services provided or bills incurred but not yet paid.
  4. Consistency:

    • Consistency refers to the quality of always behaving or performing in a similar way. In accounting, it means maintaining uniformity in accounting practices over time. Consistent financial reporting allows for better analysis and comparison across different periods or companies.
  5. Prudence:

    • Prudence is the quality of exercising caution, good judgment, and wisdom in financial matters. In accounting, prudence suggests taking a less aggressive approach to financial reporting, emphasizing conservatism and avoiding overly optimistic assumptions.
  6. Relevance:

    • Relevance refers to the information’s significance and usefulness in decision-making. In accounting, relevant information influences users’ decisions and helps them understand a company’s financial position and performance.
  7. Reliability:

    • Reliability means that financial information is accurate, verifiable, and faithfully represents the underlying transactions. Reliable information is free from bias and can be consistently reproduced.
  8. Comparability:

    • Comparability allows financial statement users to review multiple companies’ financials side by side, knowing that accounting principles have been followed consistently. It ensures consistent data presentation and facilitates comparisons.
  9. Understandability:

    • Understandability means that financial information should be presented in a clear and concise manner, making it easy for users to comprehend. Financial statements should be understandable even for non-experts personals.
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