The Accruals And Going Concern Concepts
The accruals and going concern concepts are regarded as fundamental in the preparation of financial statements. Discuss the advantages and disadvantages of these concepts, explaining the reasons why these concepts may be difficult to apply or may be inconsistent with other concepts.
Accounting statement and records are a periodic summary of account activity within a period and the documentations involved in the preparation of it (Thomas and Ward, 2012: 4). They are done based on a set of rules developed from the basic accounting concepts. First, the concept of a "true and fair view" is to ensure that an accurate financial statement is required. It suggests that accounts should meet both the legal requirement and social expectation in communication with shareholders and other stakeholders (Flint, 1982: 29). The accruals and going concern concepts are the fundamental principles for the preparation of a financial statement with “true and fair view”. However, a coin has two sides. In this essay, the advantages and disadvantages of the accruals and going concern concepts will be discussed. The reasons why these concepts are difficult to apply will be given. The conflicts between these two fundamental concepts with other concepts will then be further investigated
To start with, the accrual concept refers to the matching of costs and revenues. It means the expenses must match against income when transactions occur rather than when cash payment is received or paid (Marriott, Edwards and Mellett, 2008: 218). For instance, a business’ cash sales are ₤10,000 and credit sales are ₤3,000 of which ₤1,000 are received after the accounting period. According to the accruals concept, the sales income of ₤13,000 should be accounted for as income earned for the period despite the fact that the cash payment is received after the accounting period
It is worth to mention that, in United Kingdom, tax computation is based on the profit which calculated by accrual accounting.
Accounting statement and records are a periodic summary of account activity within a period and the documentations involved in the preparation of it (Thomas and Ward, 2012: 4). They are done based on a set of rules developed from the basic accounting concepts. First, the concept of a "true and fair view" is to ensure that an accurate financial statement is required. It suggests that accounts should meet both the legal requirement and social expectation in communication with shareholders and other stakeholders (Flint, 1982: 29). The accruals and going concern concepts are the fundamental principles for the preparation of a financial statement with “true and fair view”. However, a coin has two sides. In this essay, the advantages and disadvantages of the accruals and going concern concepts will be discussed. The reasons why these concepts are difficult to apply will be given. The conflicts between these two fundamental concepts with other concepts will then be further investigated
To start with, the accrual concept refers to the matching of costs and revenues. It means the expenses must match against income when transactions occur rather than when cash payment is received or paid (Marriott, Edwards and Mellett, 2008: 218). For instance, a business’ cash sales are ₤10,000 and credit sales are ₤3,000 of which ₤1,000 are received after the accounting period. According to the accruals concept, the sales income of ₤13,000 should be accounted for as income earned for the period despite the fact that the cash payment is received after the accounting period
It is worth to mention that, in United Kingdom, tax computation is based on the profit which calculated by accrual accounting.