What is consistency concept ? Explain its accounting implications with examples.

Consistency Concept

The concept of consistency means that accounting methods once adopted must be applied consistently in future. Also same methods and techniques must be used for similar situations.

1. Company A has been using declining balance depreciation method for its IT equipment. According to consistency concept it should continue to use declining balance depreciation method in respect of its IT equipment in the following periods. If the company wants to change it to another depreciation method, say for example the straight line method, it must provide in its financial report, the reason(s) for the change, the nature of the change and the effects of the change on items such as accumulated depreciation.

Discuss the drawbacks of Single Entry System of accounting.

Disadvantages Of Single Entry System

The following are the notable disadvantages of single entry system:

1.Unscientific And Unsystematic
The single entry system is unsystematic and unscientific system of recording financial transactions. It does not have any set of fixed rules and principles for recording and reporting the financial transactions.

2. Incomplete System
Single entry system is incomplete system because it does not record the two aspects or accounts of all the financial transactions of the business. It does not maintain any record of the transactions relating to the nominal account and real account except cash account.

3. Lack Of Arithmetical Accuracy
Single entry system is not based on the principles of debit and credit. It fails to provide the arithmetical accuracy of the books of accounts. Trial balance can not be prepared under this system to check the arithmetical accuracy of books of accounts.

4. Does Not Reflect True Profit Or Loss
Under single entry system, the true amount of profit or loss can not be ascertained because it does not maintain the nominal accounts.

5. Does Not Reflect True Financial Position
The single entry system does not maintain real accounts except cash book. Therefore, it can not reveal the true financial position of the business.

6. Frauds And Errors
The single entry system of book-keeping is incomplete, inaccurate and unscientific. It does not help to check the arithmetical accuracy of the books of accounts. Therefore, there is always a possibility of committing frauds and errors in the books of accounts.

7. Unacceptable For Tax Purpose
The single entry of book keeping has incomplete records of the financial transactions of the business. Hence, the tax office can not accept the account maintained under this system for the purpose of assessment of tax.

State the essential features of Receipts and Payments Account.

Concept And Features Of Income And Expendiutre Account

Concept Of Income And Expenditure Account

Income and expenditure account is prepared by non-trading concern to reveal the surplus or deficit arising out of the operating activities during the accounting period. It is one of the final accounts of non-trading concern like the profit and loss account of trading concern. All the revenue incomes during the accounting period are shown on income side and all of the revenue expenses during the period are shown to debit (expenditure) side of income and expenditure account. The excess of credit side over the debit side or excess of income over expenditure is termed as surplus, where the excess of expenses over the revenue income is termed as deficit. The surplus or deficit of income over expenditure is transferred to capital fund. The surplus is added to capital fund and vice-verse. Income and expenditure account is prepared on the accrual basis.

Features Of Income And Expenditure Account

* Income and expenditure account is prepared on accrual basis.
* Income and expenditure account records all cash and non-cash expenses and income, which are revenue nature.
* Income and expenditure account is debited with the expenses and losses and credited with the incomes and gains.
* The closing balance of income and expenditure account either surplus or deficit is transferred to capital fund in the balance sheet.

Fundamentals of Accounting ( Video Lecture)

Fundamentals of Accounting Video Lectures