Three Accounting Concepts: Historical Cost, Matching And Prudence

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Define THREE (3) accounting concepts: historical cost; matching and prudence Historical cost According to historical cost concepts, all transactions must be recorded at purchase price or purchase cost. The amount will be recorded in the accounting book despite the volatility of the market price of the item. The cost of buying is an objective value as the price is evident in business documents. Matching According to the matching principle, the revenue for an accounting period must be matched with the expenditure for that period to gain profit or loss for the period. The profit or loss of a business cannot be calculated based on receipt or payment within a period of time. Income for an accounting period is the amount of money received for the period, whether received or not received. Similarly, expenditure for an accounting period, it is the money that should be paid for that period, whether paid or unpaid. Prudence The principle of conservatism emphasizes that only the expected loss will be taken into account as an expense in the income statement, while profit expectations are not taken into account. Explain how the THREE (3) accounting concepts above are applied in practice Historical cost In the year 2013, Alibaibai Company had purchased a tract of land totalled RM500,000.In the year of 2015, the current fair market value is RM520,000.In spite of the land market price has been increased, but the company still need to report it at its historical cost which is

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