Accounting

            Before preparing financial statements, adjusting entries are usually made to ensure that the financial records of the company put into consideration the matching principle of accounting. This principle of accounting states that expenses are to be recorded in the same reporting period as the related revenues are reported no matter when cash is earned. Tamira would take into consideration this principle of accounting so as to prepare appropriate financial statements. Prior to applying matching principle, expenses must have been charged in the accounting period irrespective of revenues earned in that particular period (Riahi-Belkaoui, 2005). This resulted into non recognition of expenses incurred. Application of this principle of accounting results into deferment of prepaid expenses such that they match them with the future earned revenue. Similarly, accrued expenses are to be charged such that they match them with the revenues of the current period. Matching principle of accounting is important in this case so as to ensure consistency in the company’s financial statements (Riahi-Belkaoui, 2005). Therefore recognition of expenses at a wrong time with wrong values leads to a great distortion of the financial statements and in turn putting at risk the quality of the statements and providing an unjust representation of the financial position of the company.

            Therefore, if I were Tamira, I would not use the low estimates of the expenses as she used, keeping in mind the principle of reliability. This principle ensures the accounting information must be reliable, meaning it should not have any false information either over estimations or under estimations (Riahi-Belkaoui, 2005). Therefore, it means that Tamira has not been hones in the her accounting process, hence the accounting principles have not been applied fully.

References

Riahi-Belkaoui, A. (2005). Accounting theory. London: Thomson.