Accounting Concepts Flashcards
What is accruals?
The principle that revenues and costs are recognised as they are earned/incurred, matched with one another and included in income statement to the period they relate regardless of when they are received or paid
What is cash accounting (accruals)?
Relates to the recording of receipts and payments in a period, excluded revenues and costs earned/incurred that have yet to be received or paid
What is the prudence concept?
An ethical concept of understating assets and overstating losses if not certain rather than the other way round. Also should record profits only when they have been achieved but losses as soon as they are known.
What is the consistency concept?
An ethical rules that is based on having uniformity from one accounting period to the next. e.g same depreciation method
What is the going concern concept?
A boundary rule that assumes that the entity will continue to operate for the foreseeable future - important due to continuation of historical cost of assets being based on ability to generate future income
