Application of Accounting Concepts Matching Prudence Accrual
Application of Accounting Concepts
Matching Principle & Accrual Concept
Accrued / Prepaid Expense & Accrued or Advance Revenue
To ensure an accurate matching of expenses and revenue under the accrual basis, it is necessary to include all revenue earned but not received and expenses incurred but not paid. Such adjustments comprise adjustments for : Accrued Revenue
Accrued Expenses On the other hand, many recorded costs and revenues benefit more than one accounting period. Therefore, adjusting entries are required to apportion them between the periods affected. These include: Revenue Received in Advance
Prepaid Expenses
Supplies
Application of Accounting Concepts
Matching Principle
Provision for bad / doubtful debt ( Inc / Dec ) in P & L
Bad debt losses be matched against the period’s credit sales that gives rise to such losses. However, a bad debt loss may not materialise until a later period after the sale. To overcome this problem, the doubtful / bad debt losses are estimated and a provision made in anticipation of such losses.
Application of Accounting Concepts
Matching Principle
Depreciation of fixed assets
As a fixed asset benefits the business over several years, its cost must be allocated as an expense to the years it benefits to ensure accurate matching of expenses against revenue earned from using the asset for each year.
Application of Accounting Concepts
Prudence Concept
Provision for Bad / Doubtful Debts
The Prudence Concept requires that probable losses be provided. However, probable gains are not recognised until they are realised. This is to prevent an overstatement of assets and profits. Therefore, doubtful debts which may arise from year end debtors must be provided for to prevent overstatement of year end debtors and the profit for the year.
Application of Accounting Concepts
Prudence Concept
Provision for Depreciation ( Accumulated
Depreciation )
Fixed assets are shown at net book value ( cost less accumulated depreciation ) to
Matching Principle & Accrual Concept
Accrued / Prepaid Expense & Accrued or Advance Revenue
To ensure an accurate matching of expenses and revenue under the accrual basis, it is necessary to include all revenue earned but not received and expenses incurred but not paid. Such adjustments comprise adjustments for : Accrued Revenue
Accrued Expenses On the other hand, many recorded costs and revenues benefit more than one accounting period. Therefore, adjusting entries are required to apportion them between the periods affected. These include: Revenue Received in Advance
Prepaid Expenses
Supplies
Application of Accounting Concepts
Matching Principle
Provision for bad / doubtful debt ( Inc / Dec ) in P & L
Bad debt losses be matched against the period’s credit sales that gives rise to such losses. However, a bad debt loss may not materialise until a later period after the sale. To overcome this problem, the doubtful / bad debt losses are estimated and a provision made in anticipation of such losses.
Application of Accounting Concepts
Matching Principle
Depreciation of fixed assets
As a fixed asset benefits the business over several years, its cost must be allocated as an expense to the years it benefits to ensure accurate matching of expenses against revenue earned from using the asset for each year.
Application of Accounting Concepts
Prudence Concept
Provision for Bad / Doubtful Debts
The Prudence Concept requires that probable losses be provided. However, probable gains are not recognised until they are realised. This is to prevent an overstatement of assets and profits. Therefore, doubtful debts which may arise from year end debtors must be provided for to prevent overstatement of year end debtors and the profit for the year.
Application of Accounting Concepts
Prudence Concept
Provision for Depreciation ( Accumulated
Depreciation )
Fixed assets are shown at net book value ( cost less accumulated depreciation ) to