An overview of basic theoretical ideas devised to support the activity of accounting. These concepts form the fundamental principles needed for producing comparable, relevant, reliable, and understandable financial information.
Accrued income, also known as accrued revenue, is income that has been earned during an accounting period but has not yet been received by the end of the period. It adheres to the accruals concept and is vital for accurate financial reporting.
Contingencies in accounting refer to potential gains and losses that are known to exist at the balance-sheet date. These outcomes will only be known after one or more future events occur or do not occur. The way these contingencies are handled in financial statements depends on their nature, and specific accounting standards provide the required guidance.
The prudence concept is an accounting principle that mandates a realistic view of business activity, emphasizing the inclusion of anticipated revenues and profits in the profit and loss account only upon realization.
Trade receivables, also known as accounts receivable or trade debtors, represent amounts owed to a business by its customers for invoiced amounts. These are classified as current assets on the balance sheet but are separate from prepayments and other non-trade debtors. A provision for bad debts is often shown against the trade receivables balance as per the prudence concept. This provision is based on the company's historical data of bad debts and its current expectations.
