Accounting Basics: Financial Statements and Cost Concept

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What is the primary reason for using historical cost in accounting?

To ensure consistency in financial reporting
To provide objective and verifiable data in financial reports (correct)
To match the costs with the revenues earned
To reflect the current market value of assets

Which of the following is a consequence of the consistency concept in accounting?

Companies must use the same accounting methods for all periods (correct)
Changes in accounting methods are not permitted
Companies can change their accounting methods frequently
Companies can adopt different accounting methods for different products

What is the main purpose of the accruals or matching concept in accounting?

To recognize revenues when they are earned (correct)
To recognize revenues when the cash is received
To recognize revenues when the expenses are incurred
To recognize revenues when they are received

Which of the following is a characteristic of reliable financial information?

All of the above (D) Signup and view all the answers

What is the primary reason for preparing financial statements on a yearly basis?

To provide timely financial information (C) Signup and view all the answers

Which of the following is a consequence of the verifiability concept in accounting?

Accountants can provide objective and verifiable data in their reports (B) Signup and view all the answers

What is the primary objective of accounting principles and concepts?

To provide assurance to users about the credibility and reliability of financial information (D) Signup and view all the answers

Which accounting concept deals with the adoption of a specific accounting method and its consistent application?

Policy consideration (C) Signup and view all the answers

What is the primary goal of the economic entity concept?

To separate the business and its owner's financial transactions (D) Signup and view all the answers

Which accounting concept is related to the faithful representation of financial transactions?

Verifiability (D) Signup and view all the answers

What is the primary focus of the timeliness concept in accounting?

To provide stakeholders with timely financial information (B) Signup and view all the answers

Which accounting concept is related to the consistency of financial reporting?

Consistency (B) Signup and view all the answers

What is the primary objective of matching revenues with expenses in a business?

To ensure accurate financial reporting and decision-making (C) Signup and view all the answers

Which of the following expenses would be classified as an accrual?

Wages incurred but not yet paid in the current period (A) Signup and view all the answers

What is the main consideration in determining whether an item is material or immaterial?

The nature of the item and its impact on profit (A) Signup and view all the answers

Why are small payments such as postage and stationery expenses aggregated together?

To comply with accounting standards for materiality (A) Signup and view all the answers

What is the benefit of timeliness in financial reporting?

It enables stakeholders to make informed decisions (C) Signup and view all the answers

Which of the following is an example of verifiability in financial reporting?

Providing supporting evidence for financial transactions (C) Signup and view all the answers