The accruals and going concern concepts

The creditor has moved the court for liquidation of the company. Entity, a business is an entity distinct from its owners. The national company is a going concern despite of its current weak financial position.

Deferred charges include costs of starting upobtaining long-term debtadvertising campaigns, etc. Expenses for interest, taxes, rent, and salaries are commonly accrued for reporting purposes.

A company receiving the cash for benefits yet to be delivered will have to record the amount in an unearned revenue liability account. Money Measurement, accounts only deal with items to which monetary values can be attributed.

The Eastern company closes one of its branch and will continue with others. The bank is not a going concern and must prepare its financial statements on a basis other than going concern because the Board of Directors has decided to liquidate it.

accounting concepts

No liability was accrued at the end ofdespite an ability to calculate at least a minimum liability on claims outstanding. Deakinreporting on the Pennzoil-Texaco case, found no accrual until actual payment was agreed upon by the parties.

However, an estimate exists because of uncertainty about the amount of a loss resulting from an event requiring an acknowledged accounting recognition. Accrued expenses have not yet been paid for, so they are recorded in a payable account.

The Accruals And Going Concern Concepts Essay Sample

However, the general nature of most disclosures suggests that this is not too serious a concern. If the probability of loss is remote, it need not be reported at all.

Foreseeable future normally means at least one year. It's simpler, it's more intuitive, and it basically parallels the way people manage their own money.

An estimated loss from a loss contingency should be charged to income if the information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements, and the amount can be reasonably estimated.

Incomes like rent, interest on investments, commission etc.

Matching Concept Vs. Accrual Accounting

The accrual concept of accounting takes these lags into account. Instead, under provisions of ASCthe acquirer recognizes at their acquisition date fair values the assets acquired and liabilities assumed that arise from contract related contingencies.

The cash is paid up-front at the start of the subscription. Going concern concept is closely linked with business entity conceptmateriality concept and historical cost concept. For example, a company receives an annual software license fee paid out by a customer upfront on the January 1.

Texaco accrued the full amount of the loss in its statements. For non-contractual contingencies, the acquirer shall assess as of the acquisition date whether it is more likely than not that a contingency shall result in an asset or liability; if so, the acquirer recognizes the acquisition-date asset or liability at its fair value.


When a public company cannot estimate the reasonably likely impact of a contingent liability, but a range of amounts are determinable, the SEC requires disclosure of those amounts.

The depreciation of fixed assets, for example, is an expense which has to be estimated. In the deferred expense the early payment is accompanied by a related recognized expense in the subsequent accounting period, and the same amount is deducted from the prepayment.

Therefore, all the assumptions and all the figures in the financial statements accounted for and recorded in their way with the assumption that the business will continue to operate and it will not be liquidated or it will not discontinue significant part of its operations in the nearest future.

The difference between them boils down to timing -- specifically, when you recognize transactions and report the revenue and expenses associated with those transactions.

Prepayments Deferral - cash paid or received before consumption Accrual - cash paid or received after consumption Expenses Prepaid expenses: To the extent those losses are not or cannot be insured, the risks are contingencies. An income which has been earned but it has not been received yet during the accounting period.

Instead, the uncertainty lies in whether the event has occurred or will and what the effect, if any, on the enterprise would be. The topics outlined in the far left column should be amended to meet the needs of the unique Law Department, and the document could be amended for different time frames depending on the goal of the individual.

The maximum amount of loss should be disclosed. Because those events are often random in their occurrence, uncertainty surrounds whether the future event confirming the loss will or will not take place.

Going concern concept

Historical Cost, tTransactions are recorded at the cost when they occurred.Accruals Concept of accounting requires that income and expense must be recognized in the accounting periods to which they relate rather than on cash basis. Accruals concept is therefore very similar to the matching principle.

A deferral, in accrual accounting, is any account where the asset or liability is not realized until a future date (accounting period), e.g. annuities, charges, taxes, income, deferred item may be carried, dependent on type of deferral, as either an asset or liability.

See also accrual. Deferrals are the consequence of the revenue recognition principle. The paper provides a broad discussion of the topic “accruals”. Though much of what is said is familiar from the literature on accruals, the paper tries to develop concepts and show how theses forge tight links across a variety of themes.

© acca all rights reserved. 6 approach to examining the syllabus the syllabus is assessed by a two hour paper-based or computer-based examination.

The accruals and going concern concepts are the fundamental principles for the preparation of a financial statement with “true and fair view”.

Going Concern Concept

However, a coin has two sides. In this essay, the advantages and disadvantages of the accruals and going concern concepts will be discussed. PART I: SECTION 1: PAPER NO.1 FINANCIAL ACCOUNTING: GENERAL OBJECTIVE: To provide the candidate with knowledge of accounting principles, concepts and conventions and preparation of financial statements.

The accruals and going concern concepts
Rated 4/5 based on 72 review