Objectivity
Concept
This Objectivity
Concept implies that all accounting records should be
supported by proper documents, e.g., invoices, cash
memos, correspondence, agreements etc. These documents supply
the information on the basis of which entries are made in
the books of account. The accounting entries are based on
objectively verifiable evidence.
Accrual
Concept
This assumption is core of mercantile system of accounting.
According to the Accrual
Concept, revenue and costs are recognized
as they are earned or incurred (and not as money is received
or paid), The accrual concept result in the recognition and
recording of revenue transaction when the right to receive
revenue arises which can be in cash or in kind, e.g., the
credit sales of Rs. 50,000 will be included in the sales but
goods sent on approval for sale will not be treated as sales,
because of the uncertainty involved in the transaction. Similarly,
while ascertaining the profit or loss, not only those expenses,
which have been paid in cash, should be considered, but also
expenses that have accrued but not paid should be taken into
account. The application of accrual concept helps in depiction
of time financial position of the enterprise as the costs
and revenue is recognized when they are incurred. |
Accounts
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