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Accounting principles and policies

Learning Outcomes

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At the end of this unit students will be able to

Accounting principles

Show understanding of the following accounting principles:

  • accruals (matching): understand that costs must be matched against related income
  • business entity and ownership: know that a distinction is made between the financial
    transactions of a business and those of its owner(s)
  • consistency: understand that the same accounting treatment should be applied to
    similar items at all times
  • duality: understand the two-fold aspect of every transaction
  • going concern: understand that accounting assumes that a business will continue to
    operate indefinitely
  • money measurement: know that transactions must be expressed in monetary terms
  • prudence: know that profit should not be overstated by ignoring foreseeable losses or that revenue should not be recorded before it is earned
  • realisation: know that revenue is recognised as being earned when legal liability to pay is incurred by the customer (i.e. when ownership of goods passes to the customer).

Accounting policies

recognise the influence of international accounting standards and understand the following
objectives in selecting accounting policies:

  • Comparability: recognise that a financial report can only be compared with reports for other periods if similarities and differences can be identified
  • Relevance: understand that financial information is relevant only if it affects the
    business decisions
  • Reliability: understand that financial information is reliable only if it can be depended
    upon to represent actual events and is free from error and bias
  • Understandability: recognise that a financial report must be capable of being
    understood by the users of that report.



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