CONCEPTS RELATING TO FINAL ACCOUNTS INDEX

 UNIT 6 CONCEPTS RELATING TO FINAL ACCOUNTS

Structure 

6.0 Objectives 

After studying this unit you should be able to:

• Explain the concepts underlying the preparation of final accounts
• Describe various bases of accounting
• Explain the importance of distinction between capital and revenue 
• Identify correctly whether an expenditure receipt is of a capital or revenue nature.

6.1 Introduction 

You have learnt about the procedure of recording and posting various business transactions in the appropriate books of account and testing the arithmetical accuracy of these records with the help of a Trial Balance. Having recorded the transactions and tested the accuracy of books of account,' we prepare a summary at the end of the accounting period to ascertain (i) the profit or loss, and (ii) the financial position of the business. The summary is prepared in the form of a Profit and Loss Account (also called Income Statement) and a Balance Sheet (also called Position Statement). These two financial statements are termed as the 'Final Accounts'

Before you can prepare the final accounts properly, it is necessary to understand the basic concepts which guide their preparation, In this unit, you will learn about these concepts and study how each concept influences the measurement of income and the financial position of the business, Clarity on the distinction between capital and revenue is equally relevant for the Correct ascertainment of profit or loss and the financial position of the business. Hence, it is important to know whether a particular expenditure or receipt is of a capital nature or of a revenue nature.

    6.2 Basic Concepts Relating to Final Accounts

            6.2.1 Going Concern Concept 
            6.2.2 Accounting Period Concept 
            6.2.3 Matching Concept 
            6.2.4 Conservatism Concept 
            6.2.5 Consistency Concept 
            6.2.6 Full Disclosure Concept 
            6.2.7 Materiality Concept 

6.3 Bases of Accounting 

        6.4 Distinction between Capital and Revenue 
        6.4.1 Capital and Revenue Expenditures 
        6.4.2 Deferred Revenue Expenditure 
        6.4.3 Capital and Revenue Receipts 

6.5 Let Us Sum Up 
6.6 Key Words 
6.7 Answers to Check Your Progress 
6.8 Terminal Questions/Exercises