Anyone help me out with a few accounting concepts?
Discussion
Hey all, currently studying accounting an finance degree as a first year. I did go over some concepts while taking a AS level course last year and just wondered if anyone could help me to gain a better understanding of some of these (im pretty sure they've just gone and renamed some of them to confuse me)
Anyway the one's im struggling on are...
'Separate determination ( or non-aggregation)'
'Substance over form'
'Time interval'
'Dual aspect'
Just wondering if anyone fancied to enlighten me
Cheers in advance
Anyway the one's im struggling on are...
'Separate determination ( or non-aggregation)'
'Substance over form'
'Time interval'
'Dual aspect'
Just wondering if anyone fancied to enlighten me
Cheers in advance
Sleepy nic said:
Hey all, currently studying accounting an finance degree as a first year. I did go over some concepts while taking a AS level course last year and just wondered if anyone could help me to gain a better understanding of some of these (im pretty sure they've just gone and renamed some of them to confuse me)
Anyway the one's im struggling on are...
'Separate determination ( or non-aggregation)'
'Substance over form'
'Time interval'
'Dual aspect'
Just wondering if anyone fancied to enlighten me
Cheers in advance
Like in many areas, standard terminology changes over time. I started studying accountancy way back in 1976 and some of what you have listed sounds a bit alien to me, but I'll have a go - Anyway the one's im struggling on are...
'Separate determination ( or non-aggregation)'
'Substance over form'
'Time interval'
'Dual aspect'
Just wondering if anyone fancied to enlighten me
Cheers in advance
Separate Determination
- this sounds like the general principle where you do not offset one item against another (sometimes called "Netting Off")- even if they are related.
An example would be writing off a bad debt. A non-accountant might think that the easiest thing to do would be just to cancel the original sale or offset a credit note against sales. Because, in effect, a sale has gone bad and one would be forgiven for assuming that eliminating the original sale was OK to do.
However, by doing that you would be hiding the fact that you have suffered a bad debt, and the correct accounting procedure sould be to show the writing off of the bad debt as a cost in the accounts, rather than a negative sale.
Substance over form
Sometimes the accounting treatment of a transaction is arranged so as to reflect the general impact of the transaction on the business, rather than applying the absolute legal interpretation.
An example would be accounting for asssets acquired under Finance Leases or Hire Purchase agreements. In both cases, the legal position is that the business does not initially own the asset. In fact, they only own the asset after all the monthly payments have been cleared or, in the case of a lease, if they have also exercised an option to buy at the end of the lease period - which could be a number of years down the line.
Depite this, it is standard accounting practice to show the asset in the balance sheet of the business from the date of the commencement of the finance agreement. In other words, the accounts seem to indicate that the asset is actually owned by the business - which it isn't.
The total due under the agreement is shown as a liability in the balance sheet.
Notes to the accounts will highlight which assets are under these types of arrangements.
Time Interval
Not exactly sure on this but in general, time periods are crucial in accounting. Anyone making a posting in the records needs to know, not only the date the transaction happened, but also the time period covered by that transaction. An example would be an insurance premium paid near the end of one accounting year but actually related to the following accounting period.
Dual Aspect
All accounting transactions have a "Dual Aspect" i.e. the records show the effect of the transactions in two separate areas of the accounts. We use the "Debit" and "Credit" terminology as part of this dual aspect system.
Examples -
a business buys a car for £5,000 using a cheque.
Debit Fixed Assets Account- £5,000
Credit Bank Account - £5,000
a business receives a cash payment of £100 from a customer who owed them money -
Debit Cash Account - £100
Credit Trade Debtors Account- £100
a business makes a lump sum repayment of £3,500 to close a Hire Purchase account
Debit HP Account - £3,500
Credit Bank Account - £3,500
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