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SSC Financial and Cost Accounting P-1 QUESTION #6101
Question 1

A business creates an allowance for irrecoverable debts at the year end. Which accounting concepts have been applied?

  1. Matching / accruals
  2. Materiality
  3. Prudence
  4. Substance over form
  • 1 and 2
  • 1 and 3✔️
  • 2, 3 and 4
  • 3 and 4 only
Correct Answer Explanation

Option B (1 and 3) is correct.

  • Matching/Accruals (1): The allowance is recorded in the same period as the related sales revenue.
  • Prudence (3): The business anticipates a possible future loss and recognises it now, avoiding overstating assets and profits.

Materiality (2) and Substance over form (4) are not specifically relevant here.