This is an essay assignment in narrative format answering to the following three questions:
1) Apply...

Question

This is an essay assignment in narrative format answering to the following three questions:
1) Apply basic accounting concepts to analyze four hypothetical business transactions.2) Formulate an accounting issue and derive a solution. 3) Identify the information necessary to fully evaluate the accounting consequences of two hypothesized transactions.

David · Accepted Answer

Solution 
Basic Accounting Concepts are the principles followed by the Companies and their 
accountant to record the transaction in the books of accounts. Adherence to such basic 
concept is very important for TRUE & FAIR presentation of the Financial Statements of 
company. Following are the Basic accounting concept: 
a) Business entity concept: 
b) Consistency 
c) Prudence 
d) Matching (or "Accruals")
These basic concepts are briefly explained as under. 
A) Business entity concepts: Business entity concept states that business and its 
business are separate entity. The personal transaction of the owner of the business 
should not be mixed with the transaction of the business. This will make sure that 
the personal expenses of the owner are not mixed up with the expenses of the 
business.
B) Consistency: To make financial statement more meaningful and comparable, it is 
very important to follow same policies and principles every year. Different policy 
and principles every year would make the financial statement incomparable.       
So, while recording the transaction, and preparation of the financial statement, 
consistency concept should be given due weightage.
C) Prudence: Under this concept, all the actual losses, and all probable or 
anticipated losses are recognized immediately in the current year, and all the 
probable and anticipated profits are not recognized until it is actually realized. 
This is the reason why we create provision for anticipated losses.
D) Matching (or "Accruals"): Under this concept, Income/Revenue of a period is 
matched or compared with the expenses/losses for the same period. To determine 
the current profit or loss from the operations, it is very important that an expense 
of one period is matched with the income of the same period. So it is very crucial 
to maintain matching concept.
1. Apply basic accounting concepts to analyze four hypothetical business 
transactions.  
Transaction No.1:

This is an essay assignment in narrative format answering to the following three questions: 1) Apply basic accounting concepts to analyze four hypothetical business transactions. 2) Formulate an...

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