Class 11 Accountancy - Chapter Theory Base of Accounting NCERT Solutions | What is matching concept? Why should a b
What is matching concept? Why should a business concern follow this concept? Discuss?
Matching Concept states that all expenses incurred during the year, whether paid or not, and all revenues earned during the year, whether received or not, should be taken into account while determining the profit of that year. In other words, expenses incurred in a period should be set off against its revenues earned in the same accounting period for ascertaining profit or loss. For example, insurance premium paid for a year is Rs1200 on July 01 and if accounts are closed on March 31, every year, then the insurance premium of the current year will be ascertained for nine months (i.e. from July to March) and will be calculated as,
Rs 1200 − Rs 900 = Rs 300
Thus, according to the matching concept, the expense of Rs 900 will be taken into account and notRs 1200 for determining profit, as the benefit of only Rs 900 is availed in the current accounting period.
The business entities follow this concept mainly to ascertain the true profit or loss during an accounting period. It is possible that in the same accounting period, the business may either pay or receive payments that may or may not belong to the same accounting period. This leads to either overcasting or undercasting of the profit or loss, which may not reveal the true efficiency of the business and its activities in the concerned accounting period. Similarly, there may be various expenditures like, purchase of machinery, buildings, etc. These expenditures are capital in nature and their benefits can be availed over a period of time. In such cases, only the depreciation of such assets is treated as an expense and should be taken into account for calculating profit or loss of the concerned year. Thus, it is very necessary for any business entity to follow the matching concept.
More Questions From Class 11 Accountancy - Chapter Theory Base of Accounting
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Complete the following work sheet:
(i) If a firm believes that some of its debtors may ′default′, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the ___________ concept.
(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the ___________ concept.
(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the ___________ concept.
(iv) The ___________ concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.
(v) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of the ___________.
(vi) If a firm receives an order for goods, it would not be included in the sales figure owing to the ___________.
(vii) The management of a firm is remarkably incompetent, but the firms accountants can not take this into account while preparing book of accounts because of ________ concept. - Q:-
Discuss the concept-based on the premise do not anticipate profits but provide for all losses.
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When should revenue be recognised? Are there exceptions to the general rule?
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Fill in the correct word:
1. Recognition of expenses in the same period as associated revenues is called _______________concept.
2. The accounting concept that refers to the tendency of accountants to resolve uncertainty and doubt in favour of understating assets and revenues and overstating liabilities and expenses is known as _______________.
3. Revenue is generally recognised at the point of sale denotes the concept of _______________.
4. The _______________concept requires that the same accounting method should be used from one accounting period to the next.
5. The_______________concept requires that accounting transactions should be free from the bias of accountants and others. - Q:-
The accounting concepts and accounting standards are generally referred to as the essence of financial accounting. Comment.
- Q:-
Why is it necessary for accountants to assume that business entity will remain a going concern?
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What is the money measurement concept? Which one factor can make it difficult to compare the monetary values of one year with the monetary values of another year?
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Why is it important to adopt a consistent basis for the preparation of financial statements? Explain.
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What is the basic accounting equation?
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The realisation concept determines when goods sent on credit to customers are to be included in the sales figure for the purpose of computing the profit or loss for the accounting period. Which of the following tends to be used in practice to determine when to include a transaction in the sales figure for the period. When the goods have been:
a. dispatched
b. invoiced
c. delivered
d. paid for Give reasons for your answer.
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Recently Viewed Questions of Class 11 Accountancy
- Q:-
State whether each of the following statements is True or False
1. Passbook is the statement of account of the customer maintained by the bank.
2. A business firm periodically prepares a bank reconciliation statement to reconcile the bank balance as per the cash book with the passbook as these two show different balances for various reasons.
3. Cheques issued but not presented for payment will reduce the balance as per the passbook.
4. Cheques deposited but not collected will result in increasing the balance of the cash book when compared to passbook.
5. Overdraft as per the passbook is less than the overdraft as per cash book when there are cheques deposited but not collected by the banker.
6. The debit balance of the bank account as per the cash book should be equal to the credit balance of the account of the business in the books of the bank.
7. Favourable bank balance as per the cash book will be less than the bank passbook balance when there are unpresented cheques for payment.
8. Direct collections received by the bank on behalf of the customers would increase the balance as per the bank passbook when compared to the balance as per the cash book.
9. When payments made by the bank as per the standing instructions of the customer, the balance in the passbook will be more when compared to the cash book. - Q:-
Tick the Correct Answer
Which of the following is not a business transaction?
a. Bought furniture of ₹ 10,000 for business
b. Paid for salaries of employees ₹ 5,000
c. Paid sons fees from her personal bank account ₹ 20,000
d. Paid sons fees from the business ₹ 2,000 - Q:-
Differentiate between source documents and vouchers.
- Q:-
What is meant by a ‘statement of affairs’? How can the profit or loss of a trader be ascertained with the help of a statement of affairs?
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'Accounting information should be comparable'. Do you agree with this statement? Give two reasons.
- Q:-
Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.
From the above, answer the following :
1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner. - Q:-
Voucher is prepared from:
(i) Documentary evidence
(ii) Journal entry
(iii) Ledger account
(iv) All of the above - Q:-
Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
- Q:-
Select the Correct Answer:
A bank reconciliation statement is prepared by:
(a) Creditors (b) Bank
(c) Account holder in a bank (d) Debtors - Q:-
Name the parties to a promissory note.
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