Question

The auditor of James plc is insistent that great care is taken in estimating the amounts of accruals and prepayments each year.

This is justified primarily by which accounting concept?
A) Going concern
B) Relevance
C) Understandability
D) Matching

Answer 1

The auditor's insistence on estimating accruals and prepayments is justified primarily by the Matching concept.

Step-by-step explanation:

The primary accounting concept that justifies the auditor's insistence on great care in estimating accruals and prepayments is the Matching concept. The Matching concept states that expenses should be recognized in the same period as the revenues they help generate. Accruals and prepayments involve recognizing revenues and expenses before or after the actual cash transaction takes place, and accurate estimation ensures that the expenses are allocated to the correct period.