Chapter 17:
Incomplete Records 1 - Control/cash account method
Importance of keeping a proper set of accounts
- Enables an organization to prepare accurate trading, profit & loss
statements - avoids reliance on estimates to ascertain profit
- Provide a more accurate look at financial position of bus.
- Applies matching principle - uses accrual accounting rules to
record transitions
- Expenses & gains
- Reduce no. of errors by providing checks & balances
- Trial balance & control accounts
- Reduce amount of possible fraudulent record keeping - transactions
traced/audited
- Makes preparation of financial statements easier
Accounting Concepts
1) Going concern
- when preparing accounts it must be assumed that the business will continue to
operate in its present form for the foreseeable future
2) Accruals (matching)
- all items (income and expenditure) that belong to the accounting period must
be entered in the financial statements for that period regardless of whether or
not payment is paid or received.
➔ interest payable/receivable on a loan/ investments for the period must be
entered in full even if the full amount is not paid/ received
3) Consistency
- items must be treated exactly the same way from one accounting period to the
next
➔depreciation of assets -- straight line or reducing balance
4) Prudence
- when preparing accounts, caution should be exercised
↬ losses can be anticipated but gains cannot
➔provision for bad debts
- ensures that profits are not overstated and losses are not understated
The prudence concept overrides the accruals concept in cases where
they clash
