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Module 1: Conceitos de contabilidade

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Princípios de Contabilidade

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Accounting -> Accounting principles

Accounting principles

The impact of accounting principles (otherwise known as conventions, doctrines or assumptions) on the preparation and presentation of financial information is an important aspect of all Accounting units. These principles support the general accounting concepts.

These principles are described in the following pages. It is also important to recognise how they may be breached.

Accounting period

The life of the business is broken up into arbitrary periods for the purpose of measuring profit.

Breach

The owner decides to wait until the project is completed before preparing the financial reports.

Conservatism

May also be known as prudence. Losses should be recognised as soon as the business is aware of their likely event whilst profits should not be recognised until they actually occur.

Breach

The net realisable value of stock has fallen below cost yet the owner refuses to adjust cost of goods sold calculations.

Consistency

Accounting reports from one period to the next should be prepared on the same basis.

Breach

The owner uses one method of depreciation for a particular asset in one period and an alternative method in the second period.

Dependability

Data used in accounting should be subject to stringent internal control

Breach

Price calculations are based on outdated information.

Disclosure

The owner is obligated to disclose any transactions of a significant financial nature in their reports.

Breach

The owner determines not to include the recent sale of property in the financial reports as this may deter potential buyers of the business.

Diversity

Allows for the fact that no two firms are the same and therefore may use different accounting methods.

Breach

The owner decides that because the business down the road uses the straight line method of depreciation his business should do the same.

Entity

Recognises that the business, from an accounting viewpoint, is separate from the owner.

Breach

The owner includes in the business balance sheet personal assets such as his golf clubs.

Going concern

Assumes that the life of the business is ongoing, indefinite and continuous. Also known as the continuity principle.

Breach

The owner does not wish to prepare a balance sheet but rather reports non-current assets as costs in the period they were acquired.

Historical cost

All items are recorded at the original cost, that is, the cost at which they were acquired.

Breach
Property owned by the business is shown at the higher market value rather than for the amount at which it was originally acquired.


Matching

Sets out the point of time at which revenue may be recognised

Breach
A contract is signed for advertising in your magazine. Although you will not include any advertising in this period's work you still include the revenue paid in advance.

Materiality

Is concerned with which data should be disclosed in financial reports. All transactions regardless of size should be recorded.
Breach

The owner does not bother to record minor withdrawals of stock from the business.

Monetary

Only events whose impact can be measured in money terms can be treated as a financial transaction and thus entered in the books of the business.All transactions should be recorded in money terms.

Breach

Stock is shown in financial reports in quantity amounts.

Verifiability

All transactions recorded in the books of the business are supported by documentary evidence

Breach

Payments are made and recorded without supporting evidence such as invoices or cheque butts.