Accounting Concepts
Fundamental Accounting Concepts
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Going Concern Concept: This principle assumes that a business will continue its operations indefinitely. In a nutshell, it suggests the company isn’t going to dissolve in the near future.
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Consistency Concept: This principle necessitates that a company consistently applies the same accounting methods and principles from one period to the next.
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Accrual Concept: This principle stipulates that expenses and revenues should be recorded in the period they occur, not when the cash is received or paid.
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Materiality Concept: According to this principle, all important items which easily affect the understanding of financial statements must be reported.
Main Features of Public Limited Company Accounts
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Share Capital: This is the amount of money that shareholders have committed to the company. It is split into small units called shares.
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Retained Profits: These are the accumulated net income over the years which have not been distributed to the shareholders in the form of dividends.
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Long-term Liabilities: These are the obligations which are not due for payment in the next financial year, for instance, a long-term loan.
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Short-term Liabilities or Current Liabilities: These are the obligations which will be due for payment within the next financial year, such as creditors.
Reading Final Accounts
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Profit and loss account: Also known as the income statement, this shows the revenue, cost of sales and expenses of a company to calculate the profit or loss for a given period.
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Balance Sheet: This presents a snapshot of a company’s assets (what it owns), liabilities (what it owes) and shareholders’ equity (owner’s claim on assets) at a specific point in time.
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Cash Flow Statement: This report shows how changes in balance sheet accounts and income affect cash and cash equivalents, and categorizes them into operating, investing, and financing activities.