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Why is it necessary for accountants to assume that business entity will remain a going concern?

According to Kohler’s dictionary for Accountants, a going concern is defined as "Any enterprise which is expected to continue operation indefinitely in the future". Indefinitely means the business will continue for a longer period of time. This influences the accounting transaction with relation to the value of assets and liability, Depreciation of fixed assets, etc.


When should revenue be recognized? Are there exceptions to the general rule?

In case of Sale of goods: Revenue is recognized only on the date of passing of title of goods . It does not include on the date of placing of order etc.,
  In case of Works contract: The revenue is recognized on the basis of cash received on partially completed remaining is treated as sale.
  In case of Rent /Interest on loan paid: On the basis of the Passage of time
  In case of Royalty: on the basis of Production /sale of products.


Assets = Liabilities + Capital


What is the money measurement concept? Which one factor can make it difficult to compare the monetary values of one year with the monetary values of another year?

A facts or transactions which can be expressed in terms of money only recorded in Money Measurement concepts. In other words, it excludes Qualitative transaction such as working condition , Skilled labour, Health of the manager etc., Which is essential for smooth running of business operations.

It requires use of monetary unit as basis for measurement.

Different items are expressed in varied basis of Measurement.

For e.g. Land -500 Sq mts, Furniture- 2 sofa sets, 5 computer table etc.

Building – 20,000 sq feet of build up area

These, cannot be added to give useful information .But, by using rupee as a unit of measurement these can be expressed as

Land – 500 x 100 per Sq mts = 5, 00,000
Furniture – 2 x 2000 = 4,000
5 x 1,500 = 3,000
Building - 20,000 x 30 = 6, 00,000

Now, it is possible to add or subtract and use them for comparison.


‘The accounting concepts and accounting standards are generally referred to as the essence of financial accounting’. Comment.

Accounting Standards
Accounting is the language of business. Accounting Principle, concepts are general guidelines for sound Accounting practice.

The set of principles, assumption and practices following in recording accounting transaction and in preparation of financial statement referred as "Generally Accepted Accounting Principles. "(GAPP)"

Accounting Concepts
Accounting concepts are the assumption (or) ideas which are needed to understand the accounting aspects in the same sense by the user. These concepts are also essential for preparation of financial Statement and recording accounts.


Why is it important to adopt a consistent basis for the preparation of financial statements? Explain.

For the benefit of the internal users and the external users, accounting information should be reliable and comparable. Comparing informations between two companies enables the companies to assess their performance. This comparison can be made in regular intervals to come to a conclusion on whether the company has improved or deteriorated. For this comparison to be effective, it is necessary that the information provided in the financial statements are based on the policies, principles and practices. This consistency should be available throughout the accounting process like identifying the transactions, measuring them, transferring them to their respective accounts and summarizing them.


Discuss the concept-based on the premise ‘do not anticipate profits but provide for all losses’.

According to kohler "Conservatism is a guidelines which chooses between acceptable accounting alternatives for recording events and transaction so that the least favourable immediate effect on assets, income and owner’s equity is reported".

Conservatism is a policy of ‘playing safe’. Conservatism principles results in understatement of assets and overstatement of liable which may result in secret reserves. For e.g. The stock are valued at Cost or Market price whichever is lower.

It taken into consideration all Expected losses but leave all expected Profits.


What is matching concept? Why should a business concern follow this concept? Discuss.

Profit is a measure of performance of the enterprise. In order to measure the profit/loss earned during the accounting period. It requires, Matching of income earned during the accounting period with that of expenses incurred in that period.
To Opening stock By Sales
To Purchases BY closing stock
To Wages  
To Gross Profit  

In the above , first Direct costs are matched with Sales revenue to ascertain Gross Profit

To Administrative Expenses By Gross Profit
To Depreciation By Commission Received
To Operation Profit  

In the second stage , Indirect costs are matched with gross profit and other income to ascertained Operating profit

To Preliminary Expenses By operating profit
To Loss on sale of fixed assets  
To Net profit  

In the third Stage, Operating profit is matched with capital expenditure to ascertain the net profit.

(The above statement is an example of some items in trading and profit /loss account.)

Thus in Matching Concepts, to ascertain the profit /loss during the accounting period includes all incomes whether received or not and all expenditure whether paid or not during the accounting period.

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