Accounting Principles Overview
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What does the Going-Concern Principle imply about a business?

  • The business will cease operations in the foreseeable future.
  • The business should record only transactions that have cash effects.
  • The business must consolidate its financial statements with its owner.
  • The business is expected to continue its operations indefinitely. (correct)

    • Which statement best describes the Materiality Principle?

  • Materiality only applies to physical assets within the accounting records.
  • Topics of immaterial financial information should not be included in any financial report.
  • Only significant financial information that would influence decision-making needs to be reported. (correct)
  • All financial information must be reported regardless of significance.

    • What principle requires that financial statements cover a specific time period?

  • Matching Principle
  • Monetary Unit Principle
  • Accrual Accounting Principle
  • Time Period Principle (correct)

    • What does the Monetary Unit Principle ensure in accounting?

    <p>All transactions must be recorded in a single currency.</p> Signup and view all the answers

    How does the Matching Principle operate in accounting?

    <p>Expenses incurred must be recorded in the same period as the revenues they helped generate.</p> Signup and view all the answers

    Which principle would dictate that the owner and business finances should remain separate?

    <p>Business Entity Principle</p> Signup and view all the answers

    When is revenue recognized under the Accrual Accounting Principle?

    <p>When services are performed, regardless of payment.</p> Signup and view all the answers

    What is the primary focus of the Cost Principle in accounting?

    <p>To record all assets at the price they were purchased, regardless of change in value.</p> Signup and view all the answers

    What does the going-concern principle imply about a business?

    <p>The business will continue to operate indefinitely.</p> Signup and view all the answers

    Which principle addresses the separation of business and personal transactions?

    <p>Business entity principle</p> Signup and view all the answers

    What is the primary focus of the matching principle?

    <p>Matching revenues with expenses.</p> Signup and view all the answers

    Which principle dictates that financial information must reflect significant information for decision-making?

    <p>Materiality principle</p> Signup and view all the answers

    What does the monetary unit principle ensure regarding financial statements?

    <p>Transactions are recorded in a specific currency.</p> Signup and view all the answers

    The time period principle is essential for:

    <p>Breaking down financial reporting into specific time intervals.</p> Signup and view all the answers

    Which principle allows for conservative estimations in financial reporting?

    <p>Conservatism principle</p> Signup and view all the answers

    In what scenario would the matching principle be most important?

    <p>When calculating performance on a completed project.</p> Signup and view all the answers

    What principle states that expenses should be recognized in the same period as the revenues they help to generate?

    <p>Matching Principle</p> Signup and view all the answers

    Which accounting principle requires all relevant and material information to be disclosed in financial statements?

    <p>Disclosure Principle</p> Signup and view all the answers

    What principle is known for ensuring that financial statements reflect a company's ability to continue operating for the foreseeable future?

    <p>Going-Concern Principle</p> Signup and view all the answers

    Which principle dictates that an accounting entity should report financial statements in a consistent manner over time?

    <p>Time Period Principle</p> Signup and view all the answers

    In which accounting principle are minor assets expensed immediately rather than capitalized?

    <p>Materiality Principle</p> Signup and view all the answers

    What principle involves measuring and reporting financial transactions in consistent monetary terms?

    <p>Monetary Unit Principle</p> Signup and view all the answers

    Which accounting principle is focused on ensuring that potential losses are recognized while potential gains are not?

    <p>Conservatism Principle</p> Signup and view all the answers

    Which principle emphasizes that financial information must be objective and verifiable?

    <p>Objectivity Principle</p> Signup and view all the answers

    Study Notes

    Business Entity Principle

    • Distinction between business transactions and personal transactions of the owner.
    • Example: A mini grocery store owner, Aling Babes, keeps business assets and liabilities separate from personal matters.

    Cost Principle

    • Assets must be recorded at their purchase cost in financial records.
    • Example: A sari-sari store must record the cost of a calculator as its purchase price.

    Accrual Accounting Principle

    • Revenue and expenses are recognized when earned or incurred, rather than when payment is received or made.
    • Cash Basis Principle logs transactions only upon collection or payment, but is not widely accepted.
    • Example: A painter records earning revenue upon service completion, regardless of fee collection.

    Matching Principle

    • Requires that expenses incurred during a period match the revenues earned in that same period.
    • Example: When Siony sells goods, her revenue increases while inventory decreases.

    Key Accounting Principles

    • Going Concern Principle: Assumes the business will continue indefinitely.
    • Accrual Principle: Revenue and expenses recognized when earned/incurred.
    • Materiality Principle: Immaterial items can be expensed rather than capitalized.
    • Conservatism Principle: Assets and income should not be overstated; expenses and liabilities should not be understated.
    • Monetary Unit Principle: Financial transactions should be expressed in a consistent currency.
    • Objectivity Principle: Financial statements should rely on objective evidence.
    • Disclosure Principle: All relevant financial information should be disclosed.

    Principle Identification

    • Matching Principle: Cost matched with revenue.
    • Disclosure Principle: All material information should be reported.
    • Conservatism Principle: Associates with prudence, ensuring liabilities/expenses are not understated.
    • Cost Principle: Requires all goods/services to be recorded at the cost price.

    Multiple Choice Context

    • Business entity principle: Requires separation of personal and business finances.
    • Cost principle: Mandates recording all purchased goods and services at cost.
    • Going Concern Principle: Indicates that a business may cease operations if not sustainable.
    • The importance of the Matching Principle lies in aligning revenue with corresponding expenses for greater accuracy.

    Additional Details

    • Conservatism is synonymous with prudence.
    • Proper matching of revenue and expenses is crucial for accurate financial reporting.

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    Related Documents

    Fundamentals of Accountancy, Business and Management 1 - Grade 11 - Quarter 3 - Module 2 PDF

    Description

    This quiz covers essential accounting principles such as the Business Entity Principle, illustrating the separation of personal and business transactions using real-world examples. Learn how financial statements are managed across different currencies and what this means for businesses operating globally.

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