What is meant by business entity concept?
Write in brief about business entity concept.
Write about business entity concept.
Write about business entity concept with suitable examples.
According to business entity concept, business and business owner are two separate and distinct entities.
This concept states all the business transactions are recorded from the view point of business.
If transactions are mixed, the true financial information cannot be shown.
Expenses paid for business and owner is separate.
The following examples clear this concept:
Insurance premium is paid for business owner is drawings; it is deducted from capital.
Insurance premium is paid for business is business expenses; it is debited in profit and loss account.
Write in brief about money measurement concept.
Write about money measurement concept.
Explain in three sentences about money measurement concept.
According to money measurement concept, only monetary terms are recorded.
Monetary means related to money. It ignores those transactions that cannot be expressed in-term-of money.
In other word, this concept does not record non-monetary transactions.
The following examples clear this concept:
Production has stopped due to load-shedding; it is loss for company but this concept does not record it.
In accident, a worker died; it is compensation loss for company but this concept does not record it.
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BANK RECONCILIATION STATEMENT (BRS) http://tiny.cc/q59jkz
FINAL ACCOUNT: CLASS 11 http://tiny.cc/y89jkz
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CAPITAL AND REVENUE http://tiny.cc/peakkz
SINGLE ENTRY SYSTEM http://tiny.cc/n19jkz
NON-PROFIT ORGANIZATION (NON-TRADING CONCERN http://tiny.cc/j09jkz
GOVERNMENT ACCOUNTING http://tiny.cc/hcakkz
GOSWARA VOUCHER (JOURNAL VOUCHER) http://tiny.cc/hcakkz
What is meant by going concern concept?
Write in brief about ‘going concern concept’ and ‘cost concept’.
Write about the going concern concept?
According to going-on concern concept, business will continue for long-time.
The life of businessman is limited but life of business is unlimited.
Under this concept, if the owner of the business dies business goes-on continue.
In other words, the death of owner does not affect business running.
The following examples would helpful to clear this concept:
Founder of Reliance Group, Mr Dhiru Bhai Ambani has died but Reliance Group is running-on.
Founder of Chaudhary Group, Mr Bhuramul Chaudhary has died but Chaudhary Group is running-on.
Write about accounting period concept with suitable examples.
Give the meaning of accounting period concept.
According to accounting period concept, the whole life of the business is divided into one year (12 months).
This period is known accounting period concept. Generally time is 12 months but at the time business purchase, this time may be different. Time is divided to prepare financial statement. This time may be:
Calendar year 1st January 2019 – 31st December 2019
Financial year 1st April 2019 – 31st March 2020
Middle year 1st July 2019 – 30th June 2020
According to this concept, revenue is realized (earned) when goods are transferred to buyer from vendor.
And service is provided to client from expert.
It may be either cash or credit. According to this concept:
Revenue is not revenue till it is received.
In cash sales, cash is realized immediately but when goods are sold on credit, revenue is realized later.
Revenue should be considered as earned when it is realized.
If credit sales amount is not received, it is bad debts.
According to this cost concept as possible as we should write value of assets at actually received or spent.
Suppose: ABC Traders has purchased motor bike for business purpose at Rs 180,000 before one year ago.
Firm charges depreciation 15% p.a.
Purchase value of bike Rs 180,000
Less: Depreciation (Rs 180,000 @ 15%) (Rs 27,000)
Book value Rs 153,000
But market value of bike is Rs 140,000.
In such a condition, we should not write its value Rs 140,000.
We must write Rs 153,000 in account.
Value of assets is affected due to price level chance.
It is affected by inflation and deflation of money.
According to matching concept, we should compare incomes or expenses for an accounting period.
Suppose: current accounting year is 2019.
Firm has received advance Rs 200,000 to supply goods for the year 2020.
Firm has paid prepaid insurance Rs 12,000 for the year 2020.
In above examples, advance Rs 200,000 is not income for current year.
Rs 12,000 is not expenses of current year. Both amounts must be adjusted for actual profit.
The expenses for an accounting period should be compared or matched with the revenue of that period.
Otherwise, firm cannot find-out actual net profit or loss.
The expenditure incurred for generating revenue in the future should not be taken as expenses for current period.
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