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Questions and Answers
What is the building block on which the entire accounting structure rests?
Which concept assumes that the business will continue to operate for the foreseeable future?
Which accounting convention emphasizes being cautious and not overstating assets or profits?
Which concept emphasizes that only transactions that can be expressed in monetary terms are recorded in accounting?
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Which accounting concept records revenue and expenses when they are incurred, regardless of when the cash is actually received or paid?
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Which convention requires that all material information relevant to understanding the financial statements should be disclosed?
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Study Notes
Fundamental Accounting Concepts
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Building Block of Accounting Structure: The "dual aspect" or double-entry accounting principle, which ensures that every transaction affects at least two accounts, maintaining the accounting equation (Assets = Liabilities + Equity).
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Going Concern Concept: Assumes that a business will continue to operate indefinitely, unless there is evidence to the contrary, impacting how financial statements are prepared.
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Prudence Convention: Emphasizes caution in financial reporting, ensuring that assets and profits are not overstated, which helps in providing a realistic view of the company’s financial health.
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Monetary Measurement Concept: Only those transactions that can be quantified in monetary terms are recorded in the accounting records, excluding non-monetary events.
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Accrual Basis of Accounting: Revenue and expenses are recognized when they are incurred, regardless of the timing of cash transactions, which provides a more accurate picture of financial performance.
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Full Disclosure Principle: Requires that all significant information relevant to the understanding of financial statements be disclosed, promoting transparency and informed decision-making by users of the financial reports.
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Description
Test your knowledge of accounting principles, GAAP, concepts, conventions, and postulates with this quiz. Explore the basic assumptions and building blocks that underpin the preparation and presentation of financial statements.
