Accounting Concepts 2

The cost of a tape dispenser has been charged to an expense account, although in fact it could still be in use in ten years' time.

• Materiality

• Accrual Concept

• Realisation

• Consistency

A sole proprietor has sold his private house, but has not recorded anything about it in the business records.

• Business Entity

• Prudence

• Materiality

• Going Concern

A debt has been written off as a bad debt even though there is still a chance that the debtor eventually may be able to pay for it.

• Objectivity

• Materiality

• Prudence

• Historical Cost

A machine has been bought for an exceedingly low figure and it has been entered in the asset account at that figure even though it is worth more.

• Prudence

• Historical Cost

• Going Concern

• Duality

An expert says that the value of the management team to the company is worth well over a million dollars, yet nothing is entered for it in the books.

• Materiality

• Subjectivity

• Money Measurement

• Accrual Concept

A motor van broke down in December 2007. The repair bill for it was not paid until 2008 yet it has been treated as a 2007 expense.

• Accrual

• Going concern

• Business Entity

• Subjectivity

A customer saw a carpet in 2007 and said he should buy it. He telephoned in 2008 and asked for the carpet to be delivered. The item was not treated as a sale in 2007 but was treated as a sale in 2008.

• Realisation

• Going Concern

• Duality

• Materiality

We have shown all items of machinery costing less than $100 as machinery operating expenses.

• Going Concern

• Accrual Concept

• Prudence

• Materiality

We have been told that we cannot show our asset of motor cars in one year and at cost plus the price increase the next year when the manufacturer increases prices of all cars, which also includes our unsold stock.

• Materiality

• Consistency

• Prudence

• Realisation

The organization has suffered substantial losses in the past few years, and it is extremely uncertain whether the organization can continue to operate next year.

• Going Concern

• Historical Cost

• Duality

• Business Entity