In financial accounting practice, specific accounting concepts and conventions govern how business transactions and events are recorded and reported. Match each accounting scenario described below with the fundamental accounting concept or convention that dictates its accounting treatment.
- Recording purchased office equipment at its original acquisition price of Naira, ignoring any increase in its current market value.Historical Cost Concept
- Charging small expenditures on office stationery directly as an expense in the profit and loss account rather than capitalizing them as fixed assets.Materiality Convention
- Recognizing sales revenue when goods are delivered to the customer, irrespective of when cash payment is received.Accrual (Matching) Concept
- Anticipating potential future losses on doubtful debts while ignoring unearned anticipated profits.Prudence (Conservatism) Convention
Answer
1. Recording office equipment at original cost matches the Historical Cost Concept. 2. Expensing small stationery purchases immediately matches the Materiality Convention. 3. Recognizing sales revenue upon delivery regardless of cash movement matches the Accrual (Matching) Concept. 4. Anticipating doubtful debt losses while ignoring unearned profits matches the Prudence (Conservatism) Convention.
Each transaction scenario corresponds directly to its governing rule: recording assets at initial purchase price preserves historical cost; expensing minor low-value items relies on materiality; timing revenue upon performance follows accrual accounting; and recognizing prospective losses while excluding unearned gains embodies prudence.
Step-by-Step Solution
Key Concept
Accounting Concepts and Conventions
Estimated Time:1m 30s