Unit-6 Concepts Relating to Final Accounts

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

Distinguish between cash basis and accrual basis of accounting. Why do you consider accrual basis more rational?

Write notes on the following concepts: i) Going Concern Concept ii) Conservatism iii) Consistency iv) Full Disclosure v) Materiality Concept?

Why is distinction between capital and revenue important? Give examples to show how wrong classification can affect the ascertainment of profit.

What is the significance of an Accounting Period?

Name three items of costs.

What do you understand by matching costs against revenue? Explain the main implications of the Matching Concept.

What is the assumption under Going Concern Concept?

Name three items of revenue?

What is deferred revenue expenditure? Give three examples.

Ascertain the profit to the business for the month of June, 1988 for which the 'following information is available.

Sales 80,000

Cost of goods produced 70,000

Cost of goods sold 60,000

Salaries for June 10,000

Rent for June paid in July 1000

Sundry Expenses 600

Name three items of revenue?

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Items of revenue are:

Service Revenue - revenue earned from rendering services. Other account titles may be used depending on the industry of the business, such as Professional Fees for professional practice and Tuition Fees for schools.
Sales - revenue from selling goods to customers. It is the principal revenue account of merchandising and manufacturing companies.
Rent Income - earned from leasing out commercial spaces such as office space, stalls, booths, apartments, condominiums, etc.
Interest Income - revenue earned from lending money
Commission Income - earned by brokers and sales agents
Royalty Income - earned by the owner of a property, patent, or copyrighted work for allowing others to use such in generating revenue
Franchise Fee - earned by a franchisor in a franchise agreement