Understanding The Fundamentals Of Accounting Concepts And Principles Is Essential For Essay.

Fundamental Accounting Concepts

In accounting, the concepts and principles are vital to be followed by all businesses either small or bigger ones. Therefore, In this report, we are discussing more the accounting concepts and principles. Therefore, the accounting principles are the uniform practices that are always followed by entities when making records, preparing them, and even presenting the financial statements and their reports.  Therefore, according to accounting standards, all entities are supposed to prepare the financial statements based on the in-place acceptable principles in accounting. It is aimed at presenting that true and even fair view of state’s affairs of that very entity in suggestions of( Jackson,  2010). It should also be known that there are several four conventions in the accounting practices, that is to say, conservatism. Materiality,  then consistency, and finally full disclosure. These should also be valued by individuals or business people while setting up their business. On the other hand, the accounting concepts are those basic assumptions together with rules and even principles acting as a basis for recording all transactions done in business and the preparation of the accounting accounts. Some of these concepts are revenue recognition, the matching principle, full disclosure, and historical concept. A lot has been discussed below in the body as follows.

A brief discussion of fundamental accounting concepts and principles

 In accounting, businesses have to follow the in place fundamental concepts and principles as being discussed.  Below are some of the fundamental concepts in detail as they had been discussed above.

Accruals is one of the critical fundamental accounting concepts. Under this, two methods of accounting can be used, that is to say, cash basis and the accrual accounting basis as suggested by (Westland,  and  Christopher 2020). In most small businesses, the cash basis is what is always used but then accrual offers information and understanding of the financial position compared to the cash basis. Hence the accruals do match incomes and the expenses to those periods in which they did occur.

The other concept is the consistency concept, according to (Malhotra, 2016).  It states that, once an accounting method has been chosen, it should be stuck on to in future for the financial records. It is because this enables any company to compare the performance done in the accounting periods. In other words, the internal Revenue services do require consistency for reasons of filling the small taxes in business. Hence if any business needs to change the accounting method,  it should acquire IRS.

Thirdly, there is the concept of the going concern. The concept says that business people should assume their business are in the right and good positions financially and that they will keep in operation for all the foreseeable nature of future. Hence this allows companies to in most cases defer recognition of expenses in the accounting periods in the future.

The other concept is Conservation. In this concept, expenses and revenues are always treated in a different way (Mariotti, 2013). All businesses are entitled to recognizing revenue in cases of reasonable kind of certainties which can easily be recognized. That is to say by purchase orders or by the signed invoices. There are other concepts such as economic entity, matching, accounting period, equation, and the rest.

Accruals

The first one is the Revenue Recognition Principle. When any business person is recording information about his or her business, he has to put into consideration the revenue principle. It is used in recognizing all revenues in the income statement.

The other principle is the cost principle, when making recordings of the assets in a process of buying a product or maybe a service; you’re helped in maintaining a business’s expenses in an orderly way. It is vital to record the price acquisition of each and everything spent money on while recording the depreciation for all assets.

The other one is the matching principle; all expenses incurred have to be matched with the revenues that have been recognized in that equal accounting period and the time when expenses were incurred. In case the revenues were recognized on all products sold, hence the cost has to be recognized too.

On the other hand, there is the full distance principle. This principle states that all the information made on the financial statements should be complete and nothing should be misleading, according to( Merigo 2017). Therefore, with all that, the clients will get to know the relevant kind of information that is attached to the company.

Then another one is the objectivity principle, this principle highlights that,  all data attached to accounting has to be accurate and very free from the opinions of individuals in a consistent way. It assists that, data has to be supported by any evidence which of course includes the vouchers, invoices, and then receipts. Being with an objective viewpoint is very good since it eases relying on financial kind of results, according to (Chatfield, 2014). For instance, an individual's viewpoint might not be objective if he or she had to work for the same company for which he is acting as an auditor. It is because the relationships attached to the client might in most cases skew that individual’s work.

Challenges faced by businesses in the implementation of the prudence concept in light of  Covid-19.

Different accounting standards do incorporate the concept of prudence, but due to the hardships brought about by all the economic effects attached to COVID 19, companies and businesses had to go through a lot. It is because they had to apply this concept while paying attention, especially to different matters fundamentally. Therefore, below are some of the challenges which were encountered by the business while implementing the prudence concept during the light of COVID 19/.

There were provisions of the bad and doubtful kind or forms of debts that were related to different customers who underwent the financial difficulties attached to the pandemic.

The other challenge which was encountered by businesses in implementing the prudence concept during the Covid 19 was making records of the values attached to all items which might have been sold just below the costs.

Having to recognize all the reserves attached to an absolute kind of inventory and even having to write all the different items that were likely not to be sold off in the future was the other challenge. The business had to go through a lot during the Covid 19 pandemic in process of implementing the prudence concept.

Consistency Concept

Challenge of recognizing all the impairment losses attached on fixed assets due to devaluation brought up by COVID 19.

The business had to face the challenge of having to consider all revenue transactions which were either to be delayed due to the suspension of all contracts from customers.

They faced the challenges of doubting whether all the revenue contracts might have been loss-making due to the effects of COVID 19.

The other challenges business faced was having to make recordings of liabilities and the expenses which were related to all items that were not certain in terms of the amount of the data but having any possibility of their occurrence due to the effects of COVID -19 pandemic.

Analysis of the usefulness of the prudence concept in light of the relaxation of restrictions that encouraged more responsible lending to businesses

Prudence concept does take into consideration the prospective losses but then not the profits. Hence its application doe ensures that all financial statements do present that realistic picture of the state of the affairs of any enterprise and hence does not in any way paint a better picture of what it's not in suggestions of, (Bicudo de Castro et al, 2020). That one clearly states the advantages it has in the relaxation of restrictions which can encourage lending to businesses.

On the other hand, the prudence concept which is in place ensures that an individual making all the financial statements has to be sure that the incomes and even assert not in any way overstated and that a company is not overvalued either, according to the (Bank of England, 2020). Hence the expenses are not understated for purposes of making sure that they are not valued rightly which is an advantage when it comes to relaxing restrictions for lending.

Finally, prudence does state that, there is no need for an entity to make overestimated its revenues, profits and even the liabilities with losses should not be overestimated. Hence it is the role of a company to adopt a proactive kind of approach when recognizing all the liabilities and losses. it acts as a good image while lending hence a use.

Conclusion

It is therefore upon the business owners to follow up the accounting principles and concepts for the best of their activities. All the principles and concepts of accounting do a lot regarding how the success of business refers and following those yields the best results. For instance the consistency concept. It states that, once an accounting method has been chosen, it should be stuck on to in future for the financial records. It is because this enables any company to compare the performance done in the accounting periods. In other words, the internal Revenue services do require consistency for reasons of filling the small taxes in business.  Hence they are vital.

References

Bank of England. Our response to coronavirus (Covid). Available at

https://www.bankofengland.co.uk/coronavirus,2020.  [Accessed 10/09/2021]

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Chatfield, Michael; Richard  Vangermeersch.The History of Accounting: An International Encyclopedia. Routledge  2014. ISBN 9781134675456.

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