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for accounts today

Going Concern The going concern principle is the assumption that an entity will remain in business for the foreseeable future. By making this assumption, the accountant is justified in deferring the recognition of certain expenses until a later period, when the entity will presumably still be in business and using its assets as effective as possible. Example: A company manufactures a fire extinguishing chemical know GX, immediately after an election has ran, the government imposes a restriction on the manufacturing of ,import, export, marketing and sale of substance GX in a country Z. Then as long as GX is the only substance manufactured  the company will not longer be a going on concern.

Prudence The prudence concept requires that you record every liability and expense as soon as it occurs, and the results are only recorded when they are gained or assured to be gained. Example: Some liabilities are contingent upon future occurrence or non-occurrence of a specific event like law suit, global, etc. we judge the probability of occurrence of that event, if more than 50% we record a liability and expense from being understated.

Consistency The consistency principle invokes the practice that once an accounting method is adopted, you should continue to follow it consistently in future accounting periods, unless by reasonable cause to change which may improve the financial results, and these changes should be disclosed.

Example: Spencers tailoring use the FIFO method for valuing their inventory. Spencer’s earned the most profit than any other year since their inception. However much tax is owed, the minimize the taxes, they decide to switch to the LIFO inventory method. This change is okay as long as they continue with the LIFO method and don’t return to FIFO in future periods to come.

Materiality The materiality principle suggest that an accounting standard can be disregarded with the notion of the net impact being minimal on the financial statements, that a reader of said statements wouldn’t be misled. Example: For a minor transaction a controller who is closing the books for an accounting period can disregard the minor journal entires if doing so will have a immaterial impact on the financial statements

Accruals Concept The accruals concept states that expenses and revenues are recorded at the time they occur and not when they are paid for, in doing so financial statements reflect all the expenses associated with  the reported revenues for an accounting period. Example: Adjustments for revenues that have earned but not yet recored in the accounts I.e stock sold in 2004 but was not paid out until 2005. Expenses are just the same, as employee who earned a bonus in 2014 but was not paid until 2015.