Accounting conventions Flashcards
(4 cards)
1
Q
What are the 4 main Accounting conventions?
A
- Prudence
- Accruals/ Matching
- Money measurement
- Going Concern
2
Q
what is the Prudence convention?
why is it used?
A
WHAT: holds that caution should be excessed when making accounting judgments. Mainly involves recording all Losses at once and in full.
WHY: counteract excessive optimism of some managers and to prevent overstatement of financial position and performance.
3
Q
what is the Accruals/ Matching Convention?
A
WHAT: recognises revenue and matches it with the expenses that generated that revenue. Ignores the function of time and only considers what expenses generate what revenues.
4
Q
what is the Going concern convention?
A
WHAT: financial statements should be prepared on the assumption that a business will continue operations for the foreseeable future
