![]() ![]() When should the electricity expense be recorded?Ĭorrect! – March. Hence, the income should be recognized in December 2021 even if it has not yet been collected as of that date.Īnother example, suppose ABC Company received its electricity bill for the month of March on April 5 and paid it on April 10. When should the income be recognized? – On the date it is considered earned (when the service has already been rendered). The client paid after 30 days – January 8, 2022. Under accrual basis, revenues and expenses are recognized when they occur regardless of when the amounts are received or paid.įor example, ABC Company rendered repair services to a client on December 9, 2021. ![]() Hence, income is not the same as cash collections and expense is different from cash payments. The accrual method in accounting means that "revenue or income is recognized when earned regardless of when received and expenses are recognized when incurred regardless of when paid". The going concern assumption is the reason assets are generally presented in the balance sheet at cost rather that at fair market value. Long-term assets are included in the books until they are fully utilized and retired.Īnother important basic concept is accrual. The going concern principle, also known as continuing concern concept or continuity assumption, means that a business entity will continue to operate indefinitely, or at least for another twelve months.įinancial statements are prepared with the assumption that the entity will continue to exist in the future, unless otherwise stated. The Conceptual Framework of Accounting, published by the International Accounting Standards Board (IASB), mentions the underlying assumption of going concern. They lay down the foundations to prevent misunderstandings between and among the preparers and users of financial statements. The basic accounting principles serve as bases in preparing, presenting and interpreting financial statements.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |