Accounting Speech or Presentation Example | Topics and Well Written Essays - 2000 words

Accounting - Speech or Presentation Example bove financial statements, prepaid rates were deducted from the rate expense in the profit and loss account since the rates paid in advanced does not adhere to the year 20X1 and the expense is of the next year rather than of the current year. Hence it is not included in calculating the net profit. A business is considered to be going concern if there is no intention to terminate the business in the near future. However, if the business is short of working capital and the owner is unable to pay of its creditors, the business may be forced to close. The prudence concept is intended to prevent profit from being overstated. Overstating the profit can have serious drawbacks for a business. If the profit is overstated, the owner may believe that his income is higher than it really is, and may withdraw too much money from the business. This may lead to shortage of cash and eventually to the failure of the business (Randall 48). Hence it is extremely important for a business to show a realistic a profit figure on its financial statements and it is better for profit to be understated rather overstated. This principle of preventing the profit to overstate is also known as principle of conservatism. So the prudence concept is aimed at ensuring that the profits are realistic and not overstated. The business should record its transactions in the same way in the same accounting period and in all the future periods. The accounting methods used by the business should remain consistent. The concept of consistency is important to ensure that the profits or losses of different periods, and the balance sheets can be compared to achieve better results. In the above financial statements, business uses a straight line depreciation method for fixtures and fittings. According to the consistency concept, the business should consistently use this method for fixtures and fittings in the future as well and should not switch to other depreciation methods. John Higgins may issue preference