Should there be a debit entry then there must be a credit entry as well. Due to this concept, the accounting equation ‘Asset = Equity + Liability’ is formed. Example: 1 . Company BBC made payment of salary RAMMER by queue to its staff. Using the dual aspect concept, the transaction will be accounted as follows: Account Title Debit (ARM) credit (ARM) Salary Expense 5,000 Bank (b)(i) Historical Cost Should the historical cost concept be violated, users who are making economic sections will not be able to make a fair comparison between two sets of economic data.
As well as the information provided by the entity will not be reliable. (ii) Prudence If the prudence concept is violated, information, financial statements and reports by the entity will no longer be reliable. (iii) Dual Aspect If the dual aspect concept is violated, bookkeeping will no longer be systematic and precise. This will lead to inefficient management. Furthermore, theft and other losses are less likely to be detected.
Question 2 (a) Management Accounting Management accounting consists of special purpose reports that provide financial and other important information to all levels of management in an organization.
This information then becomes extremely useful to the management team to carry out future planning and allocation of the entity’s resources. (b) Financial Accounting Financial accounting consists of general purpose reports that provide information about the entity s performance and financial position. This information will help users external to an entity such as investors, suppliers, customers and regulatory agencies to make sound economic decisions regarding the particular entity. C) Differences between management accounting and financial accounting Aspect Management Accounting Financial Accounting Users Management accounting reports are solely used by internal users such as managers and employees. Financial accounting reports are mainly used by external users such as shareholders, investors and regulatory agencies. Format Management accounting reports are typically drafted according to management suitability and needs. Some reports are generated daily while others are only generated once.
Financial accounting reports are formal and have to be drafted according to the General Accepted Accounting Procedure (GAP) to ensure comparability of information between enterprises. Reports are generated annually and/or quarterly. Segment Reporting Management accounting reports usually pertain to smaller business units or specific departments, in addition to the entire organization. Financial accounting reports generally pertain to the entire organization or immensely significant easiness units.
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Accounting Chapter Assignment. (2018, May 07). Retrieved from https://graduateway.com/accounting-chapter-assignment/