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FINANCIAL ACCOUNTING
ACCOUNTING ASSUMPTIONS,
CONCEPTS AND
CONVENTIONS
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Learning objectives
Describe the purpose of some basic
conventions.
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INTRODUCTION
Financial statements provide accounting
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Accounting Concepts
Business entity
Monetary
Going concern
Accrual- based accounting
Comparability
Consistency
Neutrality
Materiality
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HJ ISMAIL????
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EXAMPLE
Wan Tan withdrew RM15000 from
Activity
Which of the following concept distinguishes and
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Activity
_____ assumes that the ringgit
Example 1
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Example 2
A nationalized refinery is in cash flows problems but
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Activity
The accounting assumption which states
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Example :
Rokiah manufactures and sells salted eggs. Her
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Answer
30/9/12
Purchased
salts on credit
Purchase is
recognized for
the year ended
31 Dec 2012
30/12/12
Sold salted
eggs on
credit
31/12/12
Accounting
year ends
2/1/13
Received
payment from
Manan and
paid Suhaila
Sale is
recognized for
the year ended
31 Dec 2012
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Activity
Accrual basis of accounting means:
i.
ii.
iii.
iv.
v.
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Example
Comparing 20X2 financial statements of
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(6) Consistency
Consistent use of basis or methods.
Once business has adopted the straight line
Reasons:
General treatment of items does not differ from period to
period
To avoid misleading interpretation of accounting
information
Erroneous comparisons of result of one period to another
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Example
Which of the following refers to the accounting
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Example
A company is facing serious liquidity problems.
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and expenses
If a transaction is considered material and
significantly affects the reported net income
of business, it should be recorded as fixed
assets otherwise it should be treated as
expenses
Purchase of motor van and stationeries
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Activity
Luxor Bhd. purchased a calculator that
CONCLUSION
As financial statements are used in decision making,
the users.
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