Accounting Principles

Cost matching Principle

Principle goes hand in hand with the Revenue Realization Principle. This principle matches (offsets) the revenues with the expenses incurred in generating this revenue.

Revenue recognition

Principle requires companies to record revenue when it is realized or realizable and actually earned. In other words, at the time the goods are actually sold or the services are rendered.

Revenue Recognition Principle

Revenue is not recognized until it is earned or realized at least realizable. To which accounting principle/concept this statement belongs? a. Accounting entity concept b. Revenue recognition principle c. Going concern concept d. Conservatism concept

Conservatism

Revenues and gains are recognized slower and expenses and losses are recognized quicker. Accountants have a tendency to stray away from painting too rosy a picture. In other words, if in doubt, err to the side of caution.

All of the above are correct

The accounting entity concept is applicable to: a. sole proprietorship form of business b. partnership form of business c. corporate form of business d. all of the above

Full Disclosure Concept

The auditor noticed that the financial statements of Pain Free Surgery Center were missing some footnotes important for users for decision making. This action of the management is violate of:

Going Concern Assumption

Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments? a. monetary unit assumption b. accounting entity assumption c. accounting period assumption d. going concern assumption

Accounting Entity

Which accounting concept or principle states that the transactions of a business must be recorded separately from those of its owners or other business? a. materiality b. accounting period c. matching principle d. accounting entity

Materiality Concept

Which accounting principle/concept allows accountants to forego making an adjusting entry after year-end close if the amount in questions is determined to be financially inconsequential to users fo the financial statements? a. accounting entity concept b. conservatism concept c. materiality concept d. full disclosure concept

All of the above are correct

Which of the following is taken into account while determining the materiality of an amount? a. Amount and financial impact to the organization b. Cumulative effect of all immaterial amounts c. Nature of the amount in question d. All of the above

Monetary Unit Assumption

Which of the following states that a transaction is not recorded in the books of accounts unless it is measurable in terms of money? a. Matching principle b. Revenue recognition principle c. Monetary unit assumption d. Accounting period assumption

Accounting period assumption

Which of the following states that the life of a business can be divided into equal time periods? a. Accounting period assumption b. Revenue recognition principle c. Accounting entity concept d. Monetary unit concept

There is no evidence that it will or will have to cease operations within the foreseeable future

A company is a going concern if: a. its balance sheet shows a strong financial position b. its income statement for the current year shows huge profit c. there is no evidence that it will or will have to cease operations within foreseeable future. d. it is a public limited company

Cost matching Principle

A fixed asset costing $3,000,000 is depreciated over its estimated useful life of 15 years. This action is related to: a. cost matching principle b. materiality concept c. full disclosure concept d. none of the above

Materiality Concept

Feel Better Hospital, a 1,500 hospital with over $1 billion in patient revenue, rounds dollar amounts in its financial statements to the nearest $1,000. Which accounting principle/concept justifies this action? a. Revenue recognition concept b. Monetary unit concept c. Materiality concept d. Historical costs concept

Historical cost Concpet

Happy Days Retirement Centers, Inc. reported all assets in the balance sheet at current market value. This action is a violation of: a. cost matching concept b. conservatism concept c. full disclosure concept d. historical cost concept

Conservatism Principle

In certain situations, companies might recognize losses but not gains. This action belongs to: a. revenue recognition principle b. monetary unit assumption c. conservatism principle d. cost matching principle

Consistency

The same accounting methods should be applied from period to period and all changes to more acceptable methods should be well explained and justified. Deviations in measured outcomes from period to period should be the result of deviations in performance not changes in methods.

Materiality

The significance and importance of an item should be considered in order to determine what is reported. Insignificant events need not be measured and recorded.

Monetary Unit

This assumption assumes accounting measures transactions and events in money and only transactions that can be monetized (stated in a monetary unit such as the dollar) are recorded and presented in financial statements. Simply stated, money is the common denominator (measurement unit) used for reportingfinancial information.

Going Concern

This assumption assumes that a business will continue operating and will not close or be sold. It assumes that a business will be in operation for a long time. Based on this assumption, actual costs instead of liquidation values are used for presenting financial information. This assumption is abandoned in the event that a business is actually going out of business.

Accounting period

This assumption assumes that business operations can be recorded and separated into different time periods such as months, quarters, and years. This is required in order to provide timely information that is used to compare present and past performance.

Accounting Entity

This assumption requires every business to be accounted for separately from the owner. Personal and business-related transactions are kept apart from each other. In other words, the separate personal transactions of owners and others are not commingled with the reporting of the economic activity of the business.

Historical Cost

This principle requires that most assets are recorded at their original acquisition cost and except for a relatively few exceptions (marketable securities) no adjustment is made for increases in market value. In other words, the value of an asset is never 'written up' even though the asset may actually be worth more than its cost.

Objectivity

What accounting principle requires having the ability to rely on documented information to record financial data? a. Going-Concern b. Objectivity c. Revenue Recognition d. Monetary Unit