Question

Question 1
Explain the following accounting concepts: (10 marks)
a. Business entity concept
b. Matching concept
c. Going concern
d. Accruals concept
e. Consistency concept

Answer 1

Solution. 1.a)An organization operating in an economic environments needs to record financial statements to sustain in long run. The process of calculation, determination and reporting of the activities of the business are kept seperated from the owner's reportings during an accounting period. It encompasses the concept of seperate entity of business from other entities or units under the business entity concept.

b)Under the matching concept, recording of expenses made by an organization is recognized only when such provides matching or similar revenues during an accounting period to the organization. No previous or advance payments or receivables will be included while computation. For example, depreciation to plant and equipment incurred and revenue received while selling it off.

c)Under the going concern, an organization happens to have adequate means to meets its obligations to stay afloat and stays away from liquidation and holds as an assumption while financial statement preparation.

d)Under the accruals concept, an organization records expense and receivables transaction at the time of occurence during financial statement recording and encompasses expected future cash flows.

e)Under the consistency concept, an organization adopts action to align with accounting method consistently in future to sustain in long run.