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    Question

    A company follows the accrual basis of accounting and

    recognizes revenue when the goods are dispatched, not when cash is received. However, in its final accounts, it also mentions that revenue is recognized only when it is reasonably certain. Which two accounting concepts does this scenario illustrate, and how do they together ensure the reliability of financial information?
    A Going Concern and Dual Aspect Correct Answer Incorrect Answer
    B Revenue Recognition and Prudence Correct Answer Incorrect Answer
    C Materiality and Matching Correct Answer Incorrect Answer
    D Consistency and Conservatism Correct Answer Incorrect Answer

    Solution

    The company recognizes revenue upon dispatch, which reflects the Revenue Recognition principle. However, by waiting until revenue is “reasonably certain,” it applies the Prudence (Conservatism) concept, avoiding overstatement of income. These concepts together help ensure that income is neither overstated nor recognized prematurely.

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