A Dose of Concepts

Abstract

A frequent misapprehension of accountancy students is that there is always a unique answer to every accounts problem. In other words, accountancy is an exact science. In reality there may be many different answers to a given situation. This is due to the need to value certain items within the accounts (e.g. fixed assets, stock), estimate liabilities (e.g. taxation), estimate whether assets are valuable (e.g. bad debts). These examples affect both Balance sheet and Profit and loss account. In each case, and this is by no means an exhaustive list, the accountant must exercise JUDGEMENT. Different accountants may come to differing opinions. Hence we must say that accountancy is often more of an art than a science. However, underlying such areas of judgement there exist certain principles or concepts upon which the practical treatment of all items are based. The purpose of this chapter is to consider the fundamental accounting concepts and to examine certain key areas where they are of importance.