Question

Conservatism, Going concern.
Q2] A trader has made a sale of Rs.75.500 out of which cash sales amounted to
Rs. 25,500. He showed trade receivables on 31-3-2014 at Rs. 25,500. Which concept is
followed by him?
a) Going concern b) Cost c) Accrual d) Money measurement​

Answer 1

Answer:

option c) Accrual

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Answer 2

Answer:c) Accrual

A trader has made a sale of Rs.75,500 out of which cash sales amounted to Rs.25,500. He showed trade receivables on 31-3-2014 at Rs.25,500. He followed the Accrual Principal.

Explanation:

Accrual Principal:

• According to the accrual principle, transactions must be documented in the period in which they take place, regardless of when the transaction's real cash flows are received.
• According to the accrual principle, financial events are appropriately recorded by balancing revenues and costs as soon as transactions, like sales, take place rather than waiting until the transaction's potential payment is collected.
• Although the accrual principle in accounting gives a more realistic representation of a company's actual financial situation, small firms find it more difficult to implement.

Example of Accrual Principal:

• When you invoice a customer, rather than when it becomes clear that the customer won't pay you, enter the projected amount of bad debt.
• Depreciate a fixed asset throughout the course of its useful life as opposed to charging it against expenses at the time of acquisition.

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