Answer to Question #215951 in Accounting for Naafu Peter

Question

1). Examine the role of accounting concepts in the preparation of financial statements. Do you find any of the accounting concepts conflicting

with each other? Give examples.

Answer 1

Some accounting concepts conflict with each other. These are:

Accruals and prudence

The accruals concept requires future income (e.g. in relation to credit sales) to be accrued. The prudence concept dictates that caution should be exercised, so that if there is doubt about the subsequent receipt, no accrual should be made.

Consistency and prudence

If circumstances change, prudence may conflict with the consistency concept, which requires the same treatment year after year.

In both situations, prudence must prevail.