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What is matching concept of accounting?

What is matching concept of accounting?

Solution

The matching concept states that the expenses recognized in an accounting period must be matched with the revenue recognized in that same period, so as to calculate the profit earned or loss suffered.

  1. Basis of the concept: expenses are matched against related incomes rather than comparing mere cash receipts and payments; a firm has earned profit if revenues exceed expenses and a loss if expenses exceed revenues.
  2. Example: total revenues of Rs. 100,000 matched against expenses of Rs. 60,000 for the same period give a net income of Rs. 40,000. Accountants largely follow this principle while preparing the income statement.

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  1. 1.

    What is accounting information? Who are the user of accounting information and why do they need such information? Explain.

    Practice
  2. 2.

    The income statement and other related information have been provided below:

    Income Statement for the year end 2080

    Particulars Rs.
    Sales revenue 7,00,000
    Less: Cost of goods sold 4,00,000
    Gross margin 3,00,000
    Less: Operating expenses:
    Office rent, rates and salaries 77,000
    Depreciation on machinery 75,000
    Premium on redemption of Debentures 5,000
    Interest on debenture 15,000
    Provision for taxation 20,000
    Total operating expenses 192,000
    Net income before other income 108,000
    Add: Profit on sale of plant (Book value 30,000) 12,000
    Net income 120,000
    Less: Provision for dividend 20,000
    Retained earnings 100,000

    Other Balance Sheet Items:

    Baishakh 1, 2080 Chaitra 30, 2080
    Share Capital 3,00,000 5,00,000
    Retained earnings 30,000 130,000
    5% Debenture 150,000 100,000
    Accounts payable 30,000 20,000
    Outstanding salaries 10,000 5,000
    Provision for taxation 30,000 20,000
    Provision for dividend 20,000 30,000
    Property, Plant & Equipment (net) 3,50,000 500,000
    Investment at cost 50,000 1,00,000
    Inventories 40,000 30,000
    Accounts receivable 60,000 40,000
    Marketable securities 30,000 20,000
    Cash at bank 20,000 30,000

    Required: Cash Flow statement.

    Long question Practice
  3. 3.

    Following are the transaction of a company:

    a. Started business with cash Rs.1,000,000.

    b. Deposited into bank Rs.300,000

    c. Paid rent in advance Rs.52,000

    d. Sold merchandise goods for Rs.400,000 on account.

    e. Purchased merchandise goods for Rs.200,000 on account

    f. Pre paid insurance paid Rs.12,000

    g. Received Rs.380,000 after deduction of 5% discount from the customers.

    h. Paid Rs.190,000 in full settlement by cheque.

    i. Paid electricity bill Rs.8,000.

    j. Paid office salary Rs.36,000 by issuing cheque.

    Additional Information

    a) Unsold stock recorded at Rs.20,000.

    b) Salary remain unpaid Rs.4,000.

    c) Insurance premium expired Rs.8,000

    Required:

    a. Journal entries for above transactions

    b. T accounts (ledger) for accounts receivable and accounts payable

    c. Triple column cash book

    d. Adjusted Trial balance

    Long question Practice
  4. 4.

    What is lease? Why is it needed? Also, explain the importance of lease.

    Practice
  5. 5.

    (a) On Chaitra 2080, Bank Statement disclosed a balance of Rs.11,400 and Cash Book showed the balance of Rs.11,000.

    i) Deposit in transit Rs.2,000

    ii) Cheque issued of Rs.6,000 but only Rs.2,000 presented for payment.

    iii) Notes receivable and interest collected by the bank Rs.2,500 and Rs.600 respectively.

    iv) Cheque of Rs.4,800 deposited by the company on Chaitra was recorded by the bank as Rs.4,200

    v) A customer's cheque for Rs.3,000 was returned by the bank due to insufficient fund.

    vi) EFT payment Rs.1,000.

    vii) Bank charge Rs.100 for the service provided by the bank

    Required: Bank Reconciliation Statement

    (b) What is receivable? What are the different types of receivable?

    Long question Practice
  6. 6.

    (a) A company purchased a machine costing Rs.220,000 on 1st Baishakh 2078. The useful life of the machine is 5 years with expected salvage value of Rs.20,000. The company decided to follow the straight line depreciation policy. At the end of Ashwin 2080, the company sold the machine for Rs.270,000 and purchased another machine for Rs.500,000. The books are closed on 31st Chaitra every year.

    Required: Machinery account for the 1st three years.

    (b) Differentiate between capital expenditure and revenue expenditure.

    Long question Practice