financial accounting

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13 January 2011 expain the following
1- money measurement concept.
2- going concern concept.
3- dual aspect concept.

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
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13 January 2011 Money Measurement Concept
An event, which can be expressed in terms of money, is termed as transaction. For accounting purpose, an event should be converted into monetary value and then recorded. Money provides a common denomination for measurement of various transactions and ascertainment of their impact on financial position. It is the only unit, which serves as the basis of accounting. Such concept of measuring an event in terms of money is called Money Measurement Concept. Further, nowadays, business is transacted world wide in different currencies. The value of such transactions expressed in different currencies is converted into the equivalent value of home currency to form uniform monetary unit. The main defect of this assumption is that non-monetary factors like efficient management, brand name, etc., are not recorded in the accounts, though they are helpful in generating revenue.

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
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13 January 2011 Continuity or Going Concern Concept
According to Going Concern Concept, business is assumed to be continued for foreseeable future. It means that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. So business is expected to meet its contractual obligation and utilise its asset for foreseeable future.
As per AS 1 ‘Disclosure of Accounting Policies’ issued by the Institute of Chartered Accountants of India, going concern is a fundamental accounting assumption. It means, this concept is generally assumed in respect of all enterprises unless otherwise disclosed in the financial statement.

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Manmohan ACA, CS

Manmohan ACA, CS (Expert)
Follow

13 January 2011 Dual Aspect Concept
This concept is base of double entry system of accounting. As assets are equal to liabilities or vice versa, hence every transaction has two aspects viz. -
1. If it increases one asset then it may reduce another asset or increase a liability.
2. If it decreases one asset then it may increase another asset or decrease a liability.
3. If it increases liability then it may reduce another liability or increase an asset.
4. If it decreases liability then it may increase another liability or decrease an asset.
For example,
If debtor balance is reduced then cash balance may be increased or net-worth of the concern may decrease as bad debt is charged against profit.