AS 2 Accounting — Accounting Concepts and Inventory Valuation

Accounting Concepts

Business Entity — The final accounts record and report on the activities of a particular business. Don’t include the assets and liabilities of people running the business.

Materiality — Items of low monetary value are not worthwhile recording in the accounts separately.

Cost — Assets and Liabilities are recorded in the accounts at historical cost. This means that balance sheet valuations are objective.

Going Concern — This presumes that the business will continue to trade for the foreseeable future. There is no intention to reduce significantly the size of the business or to liquidate the business.

Accruals — Expenses and income for goods and services are matched to the same time period.

Consistency — When a business adopts particular accounting policies it should continue to use such policies consistently.

Prudence — Requires that final accounts should always, where there is any doubt, report a conservative figure for profit and the valuation of assets.

Realisation — Business transactions are recorded in the final accounts when the legal title passes between the buyer and the seller.

Objectivity — Accounts should be objective rather than subjective and should not be influenced by the opinions or personal expectations of the owner of the business concerned, or the accountant preparing the accounts.

Inventory is to be valued at the lower of cost or (net realisable value — Costs to get the inventory into a saleable condition)