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Extra resources for Accounts
F) 6 Faithful representation. The information gives full details of its effects on the financial statements and is only recognised if its financial effects are certain. BASES OF VALUATION Types of organisation The purpose of accounts Why do businesses produce financial statements? 1 Historical cost Replacement cost Net realisable value Historical cost A basic principle of accounting is that items are normally stated in accounts at historical cost, ie at the amount which the business paid to acquire them.
An important advantage of this procedure is that objectivity is maximised: there is usually documentary evidence to prove the amount paid to purchase an asset or pay an expense. 21 Part A: Basic Accounting NOTES Definition Historical cost means that transactions are recorded at their cost when they occurred. In general, accountants prefer to deal with costs, rather than with 'values'. This is because valuations tend to be subjective and to vary according to what the valuation is for. 2 Replacement cost Definition Replacement cost means the amount needed to replace an item with an identical item.
A) The analysis on the right would be under headings like 'payments to creditors', 'payments into petty cash', 'wages' and 'other payments'. (b) Payments during 1 September totalled £2,710. We know that the total of receipts was £4,370. That means that there is a closing balance of £4,370 – £2,710 = £1,660 to be 'carried down' to the start of the next day. As you can see this 'closing balance carried down' (c/d) is noted at the end of the payments column, so that the receipts and payments totals show the same figure of £4,370 at the end of 1 September.
Accounts by BPP Learning Media