Accounting concepts + recording accounting transactions

Question 1

Accruals concept, “matching concept”

Answer 1

Match income with associated expenditure - account for transactions in the period they are incurred, NOT when cash is received/paid
eg. may pay rent quarterly but benefit every month.

Question 2

Going concern

Answer 2

Financial statements are prepared assuming the company will continue in operational existence for 12+ months, assume no intention/need to liquidate.

Question 3

Prudence

Answer 3

Only recognise income when reasonably certain you will receive it eg. entered contract.
But record all costs when they are incurred eg. may pay rent quarterly but benefit every month.

Question 4

Disaggregation

Answer 4

Material assets and liabilities should be disclosed separately, rather than being “netted off” against each other.
Must show all assets, liabilities, income and expenditure in full.

Question 5

Materiality

Answer 5

Omissions/misstatements of items are material if they could influence the decision users make based on financial statements.
Depends on nature/size, or the error

The relevance of info is affected ny its materiality.