Accounting conventions & explanation of how have these been applied in the production of the financial statements
Accounting concepts are implemented in order to sustain the concept of a true
and fair view which ensures the accuracy and consistency of the accounting information given. One of the many conventions is the one of periodicity, which assumes that the business has a predefined accounting period (annually, half-yearly, 4 seasons) and that the accounts need to be closed at regular intervals. It represents a practical period, due to its short length, which allows people to offer brief and relevant information, whereas a period of 3, 4 or more years is likely to lack detail accuracy. In Susans financial statements the period is for the year 2011, starting 1st January 2011 31st December 2011, allowing her to include any transaction made. A further important one is the going concern concept, according to which all resources are valued at cost. It presumes the businesss existence will not be interrupted in a foreseeable future, due to liquidation or other causes, and will be able to achieve its goals and respect its commitments. In what concerns Susan, she has taken a loan repayable in a 2 years period, outlining her optimistic view regarding the situation of her business in the future, and also she has a closing inventory of 8,250, which will represent the opening inventory for the next financial year. The matching convention maintains the integrity of the accounting equation, ensuring the financial accounts of the period outlines exactly what was earned and consumed. For instance, the cost of the fixed asset, the leasehold shop, is spread, via depreciation, over the life of the asset (23 years) , in order to match the cost with the periodic revenues it help generate. Also, the closing stock of 8,250 will be carried over to the next period as opening stock. The last one, the monetary convention, implies that all accounting transactions must be recorded in money terms, as it is the only way they can be quantified, but also that the settlements must have the same currency as the country in which they are held, for Susan in .