Disadvatnagesof Accrual, Prudence and Going Concern Concept?

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accesstohe
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#1
Report Thread starter 10 years ago
#1
can anybody tell me the disadvantages of these 3 main concepts?
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Flying Scotsman
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#2
Report 10 years ago
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Accruals concept: An entity matches income to expenditure in the period in which it occurred. A disadvantage would be that the financial statements appear to show an entity which is quite profitable, but in reality the entity may have liquidity problems if it is not turning profits into cash. So the accruals concept may create a false impression if it is unlikely that the entity will receive the revenue.

Prudence: This has the disadvantage of overstating liabilities and understating assets which may lead to a false impression of the entity being in a worse financial position than it actually is. This might put off potential investors. It also means the financial statements are no longer neutral.

Going concern: Assumes that the entity will continue in business for the foreseeable future, so assets may be overstated as they may not be recognised at net realisable value, but instead may be recognised at fair value which is likely to be higher.
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accesstohe
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#3
Report Thread starter 10 years ago
#3
(Original post by Flying Scotsman)
Accruals concept: An entity matches income to expenditure in the period in which it occurred. A disadvantage would be that the financial statements appear to show an entity which is quite profitable, but in reality the entity may have liquidity problems if it is not turning profits into cash. So the accruals concept may create a false impression if it is unlikely that the entity will receive the revenue.

Prudence: This has the disadvantage of overstating liabilities and understating assets which may lead to a false impression of the entity being in a worse financial position than it actually is. This might put off potential investors. It also means the financial statements are no longer neutral.

Going concern: Assumes that the entity will continue in business for the foreseeable future, so assets may be overstated as they may not be recognised at net realisable value, but instead may be recognised at fair value which is likely to be higher.
Thank you so much, I really appreciate it
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Josh2123
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#4
Report 2 years ago
#4
This was very good
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Josh2123
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#5
Report 2 years ago
#5
(Original post by flying scotsman)
accruals concept: An entity matches income to expenditure in the period in which it occurred. A disadvantage would be that the financial statements appear to show an entity which is quite profitable, but in reality the entity may have liquidity problems if it is not turning profits into cash. So the accruals concept may create a false impression if it is unlikely that the entity will receive the revenue.

Prudence: This has the disadvantage of overstating liabilities and understating assets which may lead to a false impression of the entity being in a worse financial position than it actually is. This might put off potential investors. It also means the financial statements are no longer neutral.

Going concern: Assumes that the entity will continue in business for the foreseeable future, so assets may be overstated as they may not be recognised at net realisable value, but instead may be recognised at fair value which is likely to be higher.
ineed more info
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