Accounting Concepts

Question 1

Accruals

Answer 1

All expenses incurred and income gained in a particular period must be included in the a/cs of that period. whether or not they are paid/received, e.g. electricity due
All revenue income must be included in that periods a/cs whether received or not, e.g. cr sales are treated as immediate income.
Financial a/cs are prepared on an accruals (not cash) basis, so profits & assets are not over/understated

Question 2

Going Concern

Answer 2

Financial statements are prepared assuming that the business is able to continue operating & intends to do so, i.e. not going to close/liquidate

Question 3

Consistency

Answer 3

Accounting methods, once adopted, must be applied consistently in the future, i.e. items must be dealt w/ in the same way each period to allow for comparability

Question 4

Prudence

Answer 4

Losses & liabilities should not be understated,
Gains and assets should not be overstated.
…conservatively stated financial statements