FA – May 2023 – L1 – SA – Q15 – Accounting Treatment for Accruals and Prepayments

Identifying the accounting concept that justifies adjustments for prepaid and accrued expenses.

Question

In the process of drawing up financial statements, adjustments are made for prepaid expenses and accrued expenses in order to comply with which of the following fundamental accounting concepts?

A. Matching

B. Prudency

C. Aggregation

D. Duality

E. Consistency

Answer

Explanation:
The matching concept requires that expenses be recorded in the period in which they are incurred, regardless of when they are paid. This ensures that revenues and expenses are matched in the same accounting period, leading to a more accurate representation of a company’s financial position.

Tags: Accounting Concepts, Accruals, Prepaid Expenses
Level: Level 1

Topic: Accruals and Prepayments
Series: MAY 2023

Uploader: Theophilus