Going concern and accruals: the two basic ideas
Accounts assume the business will carry on, and put income and costs in the year they belong to. See what each idea does to a figure.
Task 1Going concern3 questions
Lena Hart is an accounts assistant at Finch & Marlow, a small bookkeeping practice. One of its clients is Brindle Joinery, a workshop owned by Ruth Brindle.
Accounts are prepared on the idea that the business will carry on trading for the foreseeable future, at least the next twelve months. This is called going concern.
So an asset is shown at cost less depreciation, not at what it would fetch in a quick sale. If the business is about to close, assets are shown at what they can be sold for.
Brindle's main saw cost £20,000 and has £8,000 of depreciation to date. A dealer would give £5,000 for it today.
Task 2Accruals: a cost belongs to the year it is used2 questions
Task 3Accruals: income belongs to the year it is earned4 questions