Answer to Question #203744 in Accounting for Sandisiwe Dyumane

Question

How would you present and explain the following fundamental accounting  concepts to the Grade 10 Accounting learners in your class?   

a) Cost principle 

b) Materiality principle 

c) Going principle   (20)marks

Answer 1

Solution:

a.). Cost principle – This refers to an accounting principle that requires businesses to record their assets, liabilities, and equity investments at their original purchase cost. Transactions should be recorded on financial statements at their historical costs, that is the original value used at the time to buy them rather than their current market value.

 

b.). Materiality principle – This refers to an accounting principle that requires you to record a transaction in the accounting statements, failure to do so might change the decision-making process of stakeholders reading the company’s financial statements. It is concerned with the relevance of information, and the size and nature of transactions that should be reported in the financial statements. It also states that a transaction or accounting standard can be ignored if the net effect of doing so is immaterial or has such a small impact on the financial statements that a reader of the financial statements would not be swayed or misled. If an accountant discovers a transactional error, they should be able to use professional judgment to establish whether the error is material or immaterial to the business.

 

c.). Going principle – This refers to an accounting principle that requires that a business will continue to exist and be in operation in the foreseeable future. This means that the company will not liquidate or be forced out of business. Therefore, the company would be justified to defer the recognition of some expenses, such as depreciation and taxes until later periods.