Financial Accounting Theory. Assignment 2 Essay

Financial Accounting Theory. Assignment 2 - Essay Example While accounting for sole trader and partnership are taken up only for the purposes of tax reporting, corporate accounting is widely shared across the world so that the information can be accessed by the various users who may be affected by such information. Naturally, with a wide user base, if the reporting is not done on certain specific guidelines, interpretations may widely differ thereby destroying the very purpose of reporting. To avoid such discrepancies, a framework of concepts have been developed which bind the information into understandable statements with the underlying obligation of â€Å"relevance, objectivity and feasibility† (Anthony & Reece, 1994). These concepts combined with the three golden rules of accounting viz. Personal, Real and Nominal form the language which conveys the same meaning to all the people (Shukla, Grewal and Gupta, 2008). A small description of these concepts would give a bird’s eye view on the basics of accounting language: Dual Aspect Concept: Any income is an outcome of some benefit foregone called the expense. As such, any asset is the result of liability undertaken to acquire that asset. The equation is Asset = Liabilities +Owners’ equity. Accounting Period Concept: Financial reporting has to be done for a particular period of time, usually for a year. All transactions which take place in that year have to be recorded in the books of that period. However, due to the increasing diversity of the nature of transactions, it becomes imperative that a periodical review of the set standards is taken up so that the book-keepers do not face any confusion while recording such transactions. For this sake, International Accounting Standards Committee (IASC) and such account standards periodically to guide the users towards a standardized version of financial statements. After 2004, it was decided that issue of new standards are to be done only in compliance to the International