* Choose the Correct answer Show
1. The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline? ___________ Cost ____________ Economic Entity ___________ Monetary Unit * The Right answer is Economic Entity .
2. Which principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount? __________ Cost ____________ Economic Entity ___________ Monetary Unit * The Right answer is Cost
3. Which principle/guideline allows a company to ignore the change in the purchasing power of the dollar over time? _________ Cost _________ Economic Entity __________ Monetary Unit * The Right answer is The monetary unit that assumption that the dollar is stable over time—no inflation. 4. Which principle/guideline requires the company's financial statements to have footnotes containing information that is important to users of the financial statements? ____________ Conservatism _________ Economic Entity ___________ Full Disclosure * The right answer is The full disclosure principle that requires businesses to disclose information that is relevant to the decisions of investors and creditors.
5. Which principle/guideline justifies a company violating an accounting principle because the amounts are immaterial? _________ Conservatism __________ Full Disclosure _________ Materiality * The right answer is Materiality
For example, a large company might purchase a $300 digital camera to be used for the next five years. The matching principle would call for an expense (depreciation) of $60 per year for five years. Most accountants would violate the matching principle and expense the entire $300 in the year it is acquired. The rationale is that the decision makers would not be misled by the small differences of $240 in the year purchased and $60 per year in each of the following four years. 6. Which principle/guideline is associated with the assumption that the company will continue on long enough to carry out its objectives and commitments? __________ Economic Entity ________ Going Concern ________ Time Period * The right answer is Going Concern
7. A very large corporation's financial statements have the dollar amounts rounded to the nearest $1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny? ________ Full Disclosure _______ Materiality _______ Monetary Unit * The right answer is Materiality As long as the digits omitted are small in relation to the true amounts, companies will round numbers so as to emphasize the relevant digits. The rationale is that no one will be misled by the omission of the insignificant digits.
8. Accountants might recognize losses but not gains in certain situations. For example, the company might write-down the cost of inventory, but will not write-up the cost of inventory. Which principle/guideline is associated with this action? ______ Conservatism Right! __________ Materiality _______ Monetary Unit . * The Right answer is Conservatism that involves choosing between acceptable alternatives. In other words conservatism is used to break a tie between two acceptable choices of how to account for something. It is also associated with recognizing losses but not gains for certain situations. 9. Which principle/guideline directs a company to show all the expenses related to its revenues of a specified period even if the expenses were not paid in that period? _________ Cost ________ Matching ________ Monetary Unit * The Right answer is Matching.
10. When the accountant has to choose between two acceptable alternatives, the accountant should select the alternative that will report less profit, less asset amount, or a greater liability amount. This is based upon which principle/guideline? _________ Conservatism _________ Cost _______ Materiality * The Right answer is Conservatism is used in order to 'break a tie'. Accountants should strive to be objective and to use conservatism when doubt exists between two options.
11. Public utilities' balance sheets list the plant assets before the current assets. This is acceptable under which accounting principle/guideline? __________ Conservatism _________ Cost _________ Industry Practices * The Right answer is Industry Practices.
12. A large company purchases a $250 digital camera and expenses it immediately instead of recording it as an asset and depreciating it over its useful life. This practice may be acceptable because of which principle/guideline? ________ Cost _______ Matching _______ Materiality * The Right answer is Materiality Because this is a large company, $250 is considered to be an insignificant amount. Hence if the company depreciates the camera at $50 per year for five years or expenses $250 in the year it is purchased, an investor or lender would not be misled by the additional expense of $200 per year in the first year and the $50 difference in the next four years. 13. A corporation pays its annual property tax bill of approximately $12,000 in one payment each December 28. During the year, the corporation's monthly income statements report Property Tax Expense of $1,000. This is an example of which accounting principle/guideline? _______ Conservatism _______Matching ______ Monetary Unit * The Right answer is matching principle that requires the company to match 1/12 of the annual property tax to each month when revenues are earned as a result of the property. 14. A company sold merchandise of $8,000 to a customer in December. The company's sales terms require the customer to pay the company in 30 days. The company's income statement reported the sale in December. This is proper under which accounting principle/guideline? _________ Full Disclosure ________ Monetary Unit ________ Revenue Recognition * The right answer is revenue recognition principle that requires that revenue be reported when revenue is earned (when goods are sold or services are provided) and not at the time when payment is received. 15. Accrual accounting is based on this principle/guideline. __________ Cost __________ Full Disclosure _________ Matching * The right answer is The matching principle that requires that expenses be matched to the: -Related revenues or -to the accounting period when the expenses are incurred. When the expenses are paid for is not relevant. 16. The creative chief executive of a corporation who is personally responsible for numerous inventions and innovations is not reported as an asset on the corporation's balance sheet. The accounting principle/guideline that prevents the corporation for reporting this person as an asset is ________ Conservatism ________Cost ______ Going Concerns * The Right answer is The cost principle
17. An asset with a cost of $120,000 is depreciated over its useful life of 10 years rather than expensing the entire amount when it is purchased. This complies with which principle/guideline? _______ Cost _______ Full Disclosure _______ Matching * The Right answer is The matching principle
18. Near the end of the current year, a company required a customer to pay $200,000 as a deposit for work that is to begin in the following year. At the end of the current year the company reported the $200,000 as a liability on its balance sheet. Which accounting principle/guideline prevented the company from reporting the $200,000 on its income statement for the current year? ___________ Going concern ____________ Materiality ___________ Revenue Recognition Right! * The Right answer is Revenue recognition principle
19. A retailer wishes to report its merchandise inventory on its balance sheet at its retail value. This would violate which accounting principle/guideline? ________ Cost ________ Full Disclosure ________ Monetary Unit * The Right answer is The cost principle
20. A company borrowed $100,000 in December and will make its only payment for interest when the note comes due six months later. The total interest for the six months will be $3,600. On the December income statement the accountant reported Interest Expense of $600. This action was the result of which accounting principle/guideline? ________ Cost _______ Matching _______ Revenue Recognition Wrong. * The Right answer is The matching principle that requires that expenses be matched with the related revenues or to the appropriate period of time. In this case the company is incurring interest expense every minute that it has the loan. For one month's use of the money, the company has Interest Expense of $600 and it needs to be reported on the December income statement in order to be in compliance with the matching principle and the accrual basis of accounting. * Let's Guess the proper word 1. General guidelines. __________ * PRINCIPLES 2. The __________ unit assumption means transactions of U.S. companies are reported in dollars. * MONETARY 3. Adjusting entries help to achieve the ____________ principle. * MATCHING 4. The cost principle is often described as the __________ cost principle. * HISTORICAL 5. __________ practices allows the format of a public utility's balance sheet to be different from that of a manufacturer. * INDUSTRY 6. The concept of _________________ allows for the violation of an accounting principle when the amounts are insignificant. * MATERIALITY 7. The __________ entity assumption results in business transactions being kept separate from a sole proprietor's personal transactions. * ECONOMIC 8. In cases of uncertainty, less profit is reported under this concept. * CONSERVATISM 9. Full __________ is achieved through the notes to the financial statements. * DISCLOSURE 10. This assumption justifies quarterly financial statements. * PERIODICITY 11. Defined as the cash or cash equivalent amount at the time of a transaction. * COST 12. Accrual accounting is related to this principle. * MATCHING 13. Results in the reporting of contingent losses, but not contingent gains. * CONSERVATISM 14. Permits the immediate expensing of insignificant assets. * MATERIALITY 15. FASB is the acronym for _____________ Accounting Standards Board. * FINANCIAL 16. The __________ concern assumption is that an enterprise will continue on long enough to carry out its objectives and commitments. * GOING 17. Communicating the significant accounting policies in the first note to the financial statements is related to the full ______________ principle. * DISCLOSURE 18. The U.S. government agency with authority over the reporting requirements of corporations whose stock is publicly traded in the U.S. is the Securities and ______________ Commission. * EXCHANGE 19. Under the __________-basis of accounting, revenues are reported on the income statement in the period in which they are earned. * ACCRUAL 20. Part of the _______________ unit assumption is that the U.S. dollar retains its purchasing power over time. * MONETARY Reference : https://www.accountingcoach.com. What principle is associated with the assumption that the company will continue on long enough to carry out its objectives and commitments?Going Concern Principle
This accounting principle assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
Which principle is associated with the assumption that the company will continue?The going concern principle is the assumption that an entity will remain in business for the foreseeable future. Conversely, this means the entity will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.
Which principle guideline justify the company violating an accounting principle because the amounts are in material?The full disclosure principle requires businesses to disclose information that is relevant to the decisions of investors and creditors. When an amount is so small/immaterial an accountant may decide to ignore an accounting principle.
What are the 3 accounting assumptions?So unless specified otherwise, it will be assumed that such principles were implemented in the final accounts of the company. The three main assumptions we will deal with are – going concern, consistency, and accrual basis.
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Which principle is associated with assumption that the company will continue on long enough to carry out its objectives and commitments?
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