Question

The draft accounts for the year ended 30 June 2020 for ACDC Pty Ltd showed a profit of $200,000. The Accountant wanted to make it to be lower, so he included expenses which related to July 2020 into the total expenses for the period. Which accounting concept has been violated?


An employee’s union is working on a submission to put to the management of Cream Pty Ltd to increase the pay of employees. Which financial statement would the union be most interested in looking at when making this decision? Briefly explain your choice. Choose only one financial statement.

Answer 1

1) Matching Concept is violated in this case.

As per the matching concept, to compute net income for a specific period , we have to deduct all the relevant expenses associated with the revenue for the same accounting period.

Here, the accountant deduct the expenses for the month of July 2020 from the revenue for the year ended June 30,2020. So he has violated the matching concept in this regard. By this act he has made understatement of Profit.

2) Income Statement is the most valuable financial statement to be considered before taking this decision by the trade union.

Income statement always clearly state that the gross income, operating income and net income or loss of the business. By which trade union can easily put their option for pay hike to the management. Because profitability makes the company financially sound to increase the rate of wages and remuneration to its workers.