Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: The Going concern concept and consistency concept
- Going concern and consistency concepts are important in the accounting world
The going concern concept
- It is one of the most fundamental concepts
- It forms the assumption on which all accounting operations are carried out
- According to this concept all accounting transactions must be recorded and reported with the assumption that the business will continue to operate for the foreseeable future
- It is assumed that the business will keep Fixed Assets and Current Assets as well as
- Liabilities
- it is assumed that the entity will realize its assets and settle its obligations in the normal course of the business
- If this changes assets should be recorded at their Net realizable value instead of at cost
The consistency concept
- Due to the nature that a number of transactions can be treated in a number of alternative ways
- It is possible to constantly create a favorable set of financial statements simply by changing the way these items are created
- For example depreciation can be accounted for using either the straight line and reducing balance method
- A business may be tempted hop from method to method depending on which method enhances it’s profit for example
- The consistency concept prevents this from happening
- It dictates that once the business adopts an accounting principle or method, it must continue to follow it consistently in future accounting periods
- Any change in accounting policies/principles must be disclosed
- This ensures consistent accounting records are comparable from period to period
To access more topics go to the Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes.