Theory Base of Accounting Test - 10

The matching concept states that earnings and expenses shown in an income stament must both refer to the same goods transferred or services rendered during the accounting period. so that the true profit or loss during an accounting period can be ascertained.

Matching principle states that matching expenses with the revenue earned during the accounting year The earnings and expenses shown in an income statement must both refer to the same goods transferred or services rendered during the accounting year so that it can reveal the true efficiency of the business and its activities in the concerned accounting period and ascertain the true profit or loss during an accounting period.
 

According to consistency principle any accounting principle or method which is followed in one year should be follwed in continuing years. thus depreciation policy which is followed in one year should be follwed in next years also.

Accounting Standards have been developed so that it removes ambiguities i.e. the availability of alternative choices of accounitng methods have created confusion among accounitng circles. The need was felt to reduce or eliminate confusing or ambiguous terms and practices. The Users of financial statements require the accounting information which is comparable. the presence of wide variety of concepts, conventions and principles craeted confusion among them, rather than providinga solid and logical treatment of the transactions. thus all three options are correct.

Revenue is earned only when the goods are transferred. It means that profit is deemed to have accrued when property in goods passes to the buyer . Thus in the above examples Revenue will be recognised in the month of february.

The assumption of going concern is important for bifurcating revenue and capital expenditure as it Revenue expenditure is the one whose benefit will expire within one year and capital expenditure is the one whose benefit can be derived in future. Thus if we negate the assumption of going concern. Then every expense will be revenue expenditure.

Provision for doubtful debts is the probable loss which may happen which may not. it  is done due to principle of prudence.And thus provision is not made as per matching concept as it is not the realised loss.

Accounting standards help the various users of information to understand the financial statements of the business but it is not responsible for the cash trasnactions of the business. thus it is not the objective of the Accounting standard.

Accounting period concept is the concept which focuses on the periodical reports on the performance of the business and money measurment is recording of events which have financial effect on the business. and going concern concept states that the business will be carried on for a long time.

Going concern means the business is going to be carried on for a long time and will continue of indefinite period. Thus adjustments are made accordingly in the books of accounts.