A sole trader received an order from a credit customer on the last day of the financial year 31 May 2016. No entries were made in the accounting records for the sale of goods until the invoice was raised on 3 June 2016 when the goods were shipped.
Which accounting concept is being applied?
Select ONE answer:
- Consistency
- Going concern
- Prudence
- Realisation
- Separate Entity
Define and explain the accounting convention of ‘Materiality’?……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
This is multiple choice question is suitable for Accounting KS5 classes.
The answer is 4 – With this convention, the accounts recognise any transactions (and any profits arising from them) at the point of sale or transfer of legal ownership – rather than just when cash actually changes hands. For example, a company that makes a sale to a customer can recognise that sale when the transaction is legal – at the point of contract. The actual payment due from the customer may not arise until several months later, if the customer has been granted some credit terms. In this case an order has been received on the last day of the financial year 31 May 2016, but the actual good were shipped on 3 June 2016, and it is at this point that the sale is related and the appropriate entries for this credit customer raised of Dr Debtors Cr Sales.
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