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# Chapter 2- Theory Base on Accounting Class 11 Notes | EduRev

## Class 11 : Chapter 2- Theory Base on Accounting Class 11 Notes | EduRev

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CHAP-2 THEORY BASE OF ACCOUNTING

Q1 Why is it necessary for accounts to assume that business entity will remain a going
concern?
A1 It is assumed for accounting purposes a business will continue indefinitely. If the
concern is not liquid, the viability and therefore sustainability of that entity being able to
continue its operations in the future may be doubt. This assumption will affect the
accountant's decision on some of the assertions of balance sheet items, e.g. valuation
and classification.

If an entity is deemed to be unable to continue as a going concern, there would not be
prepaid expenses in the accounts and all such prepayments should be written off to the
income statement. In addition PPE and other non-current assets would not be stated at
cost less accumulated depreciation and accumulated impairment losses, they would need
to be stated at net realizable value. Long-term liabilities too, need to be reclassified to
current liabilities

Q2 what is the basic accounting equation?
A2 The basic accounting equation, also called the balance sheet equation, represents
the relationship between the assets, liabilities, and owner's equity of a business. It is the
foundation for thedouble-entry bookkeeping system. For each transaction, the total
debits equal the total credits. It can be expressed as

[1]

Q3 What is matching concept?
A3 Matching Principle requires that expenses incurred by an organization must be
charged to the income statement in the accounting period in which the revenue, to which
those expenses relate, is earned.
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