Tutorial 5 Accounting Concepts
1
LTJ 2020
Tutorial 5: Accounting concepts and conventions
Part A:
1. For each of the following statements, state the accounting concept that
is most closely related to it:
a) Once a particular financial period is adopted by a business, it is not
changed from one period to the next.
Consistency Concept
b) The financial statements of a business report the economic activities
of the business only and do not include the economic activities of
the owners of the business.
Business Entity Concept
c) Generally, a business is assumed to have an indefinite life, unless
there is evidence to indicate otherwise.
Going Concern Concept
2. For each of the following independent situations, one or more
accounting concepts have been violated. State the concept(s) that
has been violated and explain the correct procedure that should be
used.
a) Depreciation expense was not recorded for the current year
because the management wanted to show a higher net profit.
Matching Concept. Depreciation represents the value of the non-
current assets that has decreased as a result of use in helping the
business to generate income for the year. It should be deducted
as expenses for the period. Depreciation should be charged on
these assets.
b) Mr.Tan, the owner of a sundry shop, included his family’s
personal use of some of the goods as business expenses.
Business Entity. Personal expenses should not be recorded as
business expenses. They should be recorded as drawings in the
