Answer: The Conservatism concept of accounting lays down the principle that the entities should not anticipate for the profits but provide for all the losses. This principle prepares the entities to anticipate for all the possible losses and prepare for them positively. This concept hence allows the organizations to deal appropriately with the situations which are ambiguous and unanticipated. Hence for the reasons the organizations are expected to assess and anticipate the bad debts and thus they are expected to make discounts for the payments. Further the determination of the inventory for the organization is made at the cost price or the market price whichever is less.
What is matching concept? Why should a business concern follow this concept?
Answer: The Matching concept deals with stating that the business may realise the costs
and the revenues in the books in the same accounting period in which they are incurred.
The revenues should be recognised when either they are realised or when they are
realisable or whichever occurs first. The expenses must be accounted when they are
either accrued or paid in the same accounting period. This further allows the business to
rightly compute the cost of the goods sold in the end of the accounting period when the
cost of the unsold goods from the total cost of the production. Hence this allows the
business to determine the profit or loss of the accounting period when such expenses and
revenues are duly recognised. Thus, if the matching concept is not followed by the
business in its accounting practices, it implies that the profit or the loss is over/under
estimated. Similarly, other such expenses such as depreciation are necessary to be
recorded in order to determine the profit or the loss of the business in the end of the