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In: Finance

Which of the following statements is false? a. The accounting period of a business entity is...

Which of the following statements is false?
a. The accounting period of a business entity is usually one year.
b. Expenses must be recorded as soon as they are realized or incurred.

Solutions

Expert Solution

Option:b i.e Expenses must be recorded as soon as they are realized or incurred is a False statement.

In accounting there is a concept called Prudence. It means we must expect future losses or expenses and should provide the provision for the same on an estimation basis.

For example, we should estimate the amount of Bad Debts which will occure in future. Generally Bad Debts will be calculated on following basis.

1. Percentage of Credit Sales

2. Percentage of total Debtors Value

3. On past experience

Like that we should make provision for Income Tax, Depreciation etc.

jeff jeffy answered 2 years ago
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