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unit-12-basic-concepts-relating-to-final-accounts

Unit-12 Basic Concepts Relating to Final Accounts

In this unit you will learn about the basic accounting concepts or principles which guide the preparation of final accounts.

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Name three items of costs. 


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Learning Pundits Content Team

Written on Jun 25, 2019 5:04:29 PM

The matching principle holds that the expenses should be recognized the same period as the associated revenues. Thus,

i.The cost of goods have to be matched with their sales revenue. This means that while preparing the Profit and Loss Account for a particular year, you should not take the cost of all the goods produced during that year, but consider only the cost of goods that have actually been sold during that year. The cost of goods sold is arrived at by deducting the cost of closing stock from the cost of goods produced. You will learn about it in detail in Unit 14.

ii.Expenses such as salaries, wages, interest. rent, insurance, etc., are recognized on time basis. In other words, they are related to the year in which the service is obtained or the expense is incurred, whether paid immediately or payable at a later date.

iii.Costs like depreciation on fixed assets are also allocated on time basis.