Use of concepts in preparation of financial statements resulting in recording: accruals and prepayments, depreciation (straight line and reducing balance), disposal of non-current assets, provision for doubtful debts, irrecoverable debts, recovery of irrecoverable debts, income due, income received in advance, goods taken for own use, goods on sale or return, inventory
Accounting concepts require businesses to adjust raw figures before producing final financial statements. These adjustments — such as depreciation, accruals, and bad debts — make sure the statements show a true and fair picture of the business.
Formula
Carrying Amount = Cost − Accumulated Depreciation
Real World
When Ryanair depreciates its Boeing 737s using the straight-line method over 23 years, it charges an equal annual expense to the income statement, reducing the aircraft's carrying amount on the statement of financial position each year.
Exam Focus
Show workings for every depreciation or provision calculation — a correct answer with no working risks losing method marks.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
How well did you know this?