SOME ACCOUNTING CONCEPTS (word and opposites?)

Accounting oh accounting why must you be so different (Complicated)

3 weeks later and 6 sessions in CFA, I have encountered some rather strange terms thrown around in class. I am already of the opinion that the founding fathers of accounting were a very secretive bunch so they gave their own meaning to normal English words, leaving me to play word and opposite with every new phrase I hear. There are some normal sounding ones like receivables and payables, or materiality and immateriality, that have direct meanings, however I get lost wrapping my head around credit and debits or qualified and unqualified. This is a little summary of my exploration into the meaning of some accounting concepts.

THE CONCEPT OF MATERIALITY

The materiality concept states that transactions of minimal significance should not be disclosed. Materiality is evaluated based on size and relevance. This will be subjective as an amount that is deemed insignificant by a large company might seem to be a lot for a smaller company.

A transaction is termed material when its omission or misstatement in a financial report will impact the decision of a stakeholder, and the opposite is the case for immaterial transactions.

OBJECTIVITY PRINCIPLE

The objectivity principle states that the financial statements a company produces must be based on solid evidence. This aims to ensure that the financial information is unbiased and free from internal or external influences. The objectivity concept cuts across many levels governing how financial reports are produced and audited. This insures investors’ trust in the authenticity of financial statements.

GOING CONCERN

Now what do you mean by going concern? After thought? I shouldn’t think about it? My concern came and now it’s going? This is one of those weird terms I was talking about, and apparently going concern is a good thing.

Going concern is an accounting term that means a company is financially stable enough to meet its obligations and continue doing business for the foreseeable future. This title of going concern allows the company to defer certain expenses and assets in the financial report (e.g., startup costs, depreciation costs on tangible assets).

CREDITS AND DEBITS (Double Entry)

I grew up with the idea that debits (bank alerts) meant was subtracted while credits meant money was added. Things seem to be not so straight forward in accounting, where debits means increase and credits means decrease, although not the case all the time, as there as specific rules to follow that I am yet to learn. For now, all I know is that debit is at the left side of the accounting entry and it increases assets and expenses, and decreases liabilities and revenue; while credit on the right side, increases liabilities and revenues and decreases assets and expenses. Debits and credits are a way of showing where value is coming from and where it is going. Debit is the receiving side, and credit is the giving side. Remember every transaction must maintain the balance: assets = liabilities + equity.