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rmance of the firm at that point of time.

The concept also brings about the technique of “depreciation of fixed assets in the balance sheet and profit and loss account. The concept requires the firm to estimate the net cost of the asset (i.e. cost less residual value) and charge it to the periods expected to benefit from its use (i.e. its useful economic life). In other words, this technique will be matching the cost of using the asset with the revenue it helps to generate.”

(https://www.accaglobal.com/students/publications/finance_matters/archive/2000/43/15563). The problem with this is when different methods of depreciation are used within the firm or for firms within the same industry. Therefore the firm can not compare to its competitors accurately as different method have been applied in their accounting statement, and also comparing the performance of the firm from its past year(s) might be inaccurate.

The problem for companies applying the going concern is that it affects the business activity, in terms of how the entity functions basing on its objectives. The concept assumes that the firm is going to remain in existence for and beyond the foreseeable future; therefore the main objective will be on continuity. Therefore techniques like depreciation are used when preparing the books of accounts, fixed assets will normally be shown in the balance sheet at cost less accumulated depreciation. The use of this concept also includes a large amount of judgement on the future basing on the information accessible at that point of time when the judgement is made. Therefore historistic information is used, however they are other external factors that affect the entity in future that are not taken in account, i.e. the inflation might affect the prices with in the market, therefore the residual value that is used for depreciation for the fixed assets, might not be what has been predicted, therefore the firm is likely to either over-value or under value its assets.

Nevertheless, in accounting they are other concepts used in companies, these include: the consistency convection, entity concept, prudence, diversity, materiality and monetary convection. I am going to talk about three of these that are considered to be important.

Firstly, the consistency concept is when the business has to apply consistency methods and policies when preparing accounting statements, this enables the business to make a sensible comparison year after year. It helps the firm in management within the company i.e. by making valid decisions using the information provided by the financial statement. They can also compare the present financial statements i.e. the balance sheet with the past year ones and can make judgement on the business performance by measuring the returned profit or the working capital to also reflect on the efficiency of the business. The consistency concept also helps the companies externally, in comparing of the annual performance/activity with other companies in the same industry i.e. its competitors. This will help the business in management decisions in order to be more competitive. The concepts also enable the users of the business financial accounting to be able to compare the businesses one performance over a certain time period, which will help in their decision marking e.g. potential investors.

The Entity concept is where by