Year 10-12 Learning Continuity Packages

10th July, 2020: Accounting

Student Learning Continuity Program
Student Learning Continuity Program
10th July, 2020: Accounting

Topic: Accounting


  • Nature and Environment of Accounting
  • Conceptual Basis of Accounting


Basic Accounting is useful for everybody

It will save you money and be safer for you in the future if you understand the principles of accounting. It is the language of business. Even in our own homes, it is important to be able to understand and compare our expenses to the revenue earned.


Importance of Accounting:

  • Accounting is a discipline that identifies, records and communicates financial reports that are relevant, reliable and comparable to help users make better decisions.
  • Financial information – financial reports that are expressed in monetary terms about a business at a certain level or certain point in time, eg. End of month, year or end of the accounting period
    • Revenue statements (also known as income statements, profit/loss statements or statement of financial performance) – declares the profit or loss made by a business for a given period.
    • Balance Sheet – shows the financial position of the business – it’s assets, liabilities and the owner’s equity at the end of the accounting period
    • Statement of Cashflow – changes in the cash of an enterprise over a period of time
    • Budget – projections of how much revenue is expected to be received and how much is expected to be spent over a period of time.
  • In order for users to make better business decisions, these financial reports must have certain qualities.
  • Quality Characteristics of Financial Information:
    • Relevance – helps users to form predictions about the outcome of past, present and future events. Past revenue trends can be useful to predict revenue for the current year, estimating sales targets, etc.
    • Reliability – supported by adequate documentation (source documents, proven transactions)
    • Comparability – comparing income reported from one year to another to make useful decisions.

Users of Financial Information:

  • Ownerssole traders (single person engaged in small business), partnerships (several individuals joined together to make a business), company – individuals and other businesses who buy shares in a company business
  • Managers – important in making decisions, involved in planning, coordination and control of business operations
  • Government – needs to ensure that taxes are paid from the profits that are made by the firms.
  • Creditors or accounts payable – individuals or businesses that are owed money from the provision of credit or the supply of goods or services. Concerned with the capacity of the business to pay its liabilities as they fall due for payment. Suppliers would be interested in financial reports as they want to know whether debts will be paid in the current period and if they should supply for the next period.
  • Employees – workers want to know that their wages and entitlements will be paid
  • Customers – seek to ensure that goods and services are provided to them
  • Trade Unions – if businesses are doing well, seek pay rises for employees



Multiple Choice

The external user who is interested in knowing the amount of tax paid by the business is known as:

  1. trade union
  2. lenders
  3. government departments
  4. customers

Answer is c – government departments

Short Answer:

Which quality characteristic of financial information is valid in the following situation:

“Last year the canteen manager did not have an accountant to help him and he decided to prepare his own financial report.”

  • Relevance – the information provided may not be relevant and useful for making predictions for the future.


Conceptual Basis of Accounting:

Accounting is a body of knowledge with associated rules or concepts, or principles. Accounting assumptions (concepts, principles or conventions) are generally accepted accounting principles or GAAP. These accounting concepts are guidelines or rules that every accountant uses in preparation of financial reports.

Accounting Entity Concept 

The financial affairs of the business are separate and distant from the financial affairs of the owners. Any transactions are expressed from the viewpoint of the business. Eg. If the owner withdraws cash or goods from the business, these are recorded as drawings and not as an expense.

Legal Entity Concept

The business entity is formed by the process of the law and it can be sued. (Applied to companies, not necessarily sole traders and partnerships).

Monetary Measurement Concepts

All transactions made by the business are to be expressed in monetary terms. Any businesses operating in Solomon Islands must record it’s transactions in Solomon Islands Dollars (SBD).

Going Concern or Continuity

The business is going to continue for an indefinite period of time.

Accounting Period Concept

Assumes that the life of the business is divided into time periods that are helpful to measure the profit of the business. Eg. Financial monthly reports determine how much profit was made for the period, as well as assets and liabilities. Can be monthly or annual.

Matching Concept

In an accounting period, the expenses are matched with their related income that was earnt over the period. Eg. $400 expenses is compared with revenue of $600 for the same period.

Accrual Basis concept

Assumes that the revenue and costs are realized and included in the income statement as they are earned or incurred and not necessarily when cash is paid or received. Whether it is a cash or credit transaction it must be recorded in the period to which it relates.

Historical Cost Concept

Refers to the cost of the assets at their original cost. Eg. If land is recorded in the balance sheet at $50,000 at the time of purchase, in two or three years’ time the original cost still needs to be recorded with the same value, even if depreciation is incurred on the original cost.

Consistency Concept

Methods must be consistent from one accounting period to the next. If another method is chosen, users must be made aware.



1. Which of the following explains the basic entity concept

  1. transactions are recorded from the viewpoint of the business
  2. payments to owners are kept separate from the costs of the business
  3. assets and liabilities are owned by the business and not the owners
  4. all of the above

Answer is d – all of the above

2) Accountants measure profits or losses by recording the effects of the transaction in terms of dollars and cents. Which of the following concepts best describes this process?

  1. matching concept
  2. monetary concept
  3. double entry concept
  4. accrual concept

Answer is b – monetary concept


Click on this link to see a collection of resources for Senior Secondary Accounting

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    • Thank you for your comment. A MEHRD officer will be in contact with you via email to help you with your specific questions.

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