9706 · 1.5.1
Adjustments to draft financial statements
9706 P2 — accruals, prepayments, depreciation, irrecoverable debts, inventory, and error correction.
Need to know
What you need to know
- The accruals concept matches expenses incurred with revenues earned in the same period.
- It focuses on when an economic event occurs, not when cash is exchanged.
- Adjustments are required to correct the draft accounts to comply with this principle.
- This concept directly leads to the creation of accrued expenses (liabilities) and prepaid expenses (assets).
Explanation
Adjustments to draft financial statements
- The accruals concept matches expenses incurred with revenues earned in the same period.
- It focuses on when an economic event occurs, not when cash is exchanged.
- Adjustments are required to correct the draft accounts to comply with this principle.
- This concept directly leads to the creation of accrued expenses (liabilities) and prepaid expenses (assets).