64 Questions
What do accounting principles determine?
Which assets and liabilities are recorded in a statement of financial position
What do the financial accounting principles help determine?
How assets and liabilities are valued
What is the focus of financial accounting information?
The activities of the business entity
How are the financial statements prepared according to the text?
As though the business is an entity separate from its owner
For accounting purposes, how is a sole trader regarded?
As a separate entity
What happens if a sole trader does not have sufficient resources to meet its debts?
Personal assets must be sold to meet them
What is the key characteristic of a limited company that distinguishes it from its owners?
It can enter into legal contracts in its own right
What is the basis for the values shown in the financial statements in the historical cost accounting system?
Original cost of the transaction
What is the purpose of 'revaluing' non-current assets in accounting?
To show their current market value
What quality is demanded of all information in the financial statements according to the definition of materiality?
Relevance
What would make an item 'material' according to the concept of materiality in financial reporting?
$100 error in recording a sale when total sales are $10,000
In what situation would an error in recording a sale not be considered material?
$1,000 error in recording a sale when total sales are $10 million
What is the threshold quality that is demanded of all information in financial statements?
Clarity
What is the key principle underlying the recording of accounting transactions through double-entry bookkeeping?
'Duality' (the dual aspect)
What is the key characteristic of historical cost accounting system?
'Values based on the cost or price of a transaction when it occurred
What is the potential liability of owners of a limited company if it becomes insolvent?
Liable for the sum they have invested
Financial accounting information includes the personal activities of the business owner.
False
The financial statements are prepared as though the business is not a separate entity from its owner.
False
Accounting principles help determine how assets and liabilities are valued.
True
Financial accounting principles do not play a role in determining what income and expenditure is recorded in the statement of profit or loss.
False
The Framework for Financial Reporting contains many of the accounting principles noted in the text.
True
Sole traders are legally separate from their owners for accounting purposes.
False
A limited company is considered a separate legal entity from its owners.
True
The historical cost accounting system values assets based on their current market value.
False
Materiality refers to the threshold quality demanded of all information in financial statements.
True
The error in recording a sale of $100 as a sale of $1,000 would be considered immaterial if the total sales are $10 million.
True
If a sole trader becomes insolvent, the owner's liability is unlimited.
True
Every transaction has two effects due to the dual aspect underlying double-entry bookkeeping.
True
The value of an item in the historical cost accounting system is based on its current market value.
False
Materiality affects the clarity and relevance of financial statements by including only significant items.
True
The key characteristic distinguishing a limited company from its owners is that the owners' liability is limited to their investment.
True
Entities might 'revalue' certain non-current assets to their current market value in historical cost accounting.
False
Financial accounting information includes the personal activities of the business owner.
False
The financial statements are prepared as though the business is not a separate entity from its owner.
False
If a sole trader becomes insolvent, the owner's liability is unlimited.
True
Entities might 'revalue' certain non-current assets to their current market value in historical cost accounting.
True
A limited company is considered a separate legal entity from its owners.
True
Accounting principles help determine how assets and liabilities are valued.
True
A limited company is a separate legal entity distinct from its owners.
True
The historical cost accounting system values assets based on their current market value.
False
Materiality affects the clarity and relevance of financial statements by including only significant items.
True
Entities might 'revalue' certain non-current assets to their current market value in historical cost accounting.
False
The error in recording a sale of $100 as a sale of $1,000 would be considered immaterial if the total sales are $10 million.
True
Every transaction has two effects due to the dual aspect underlying double-entry bookkeeping.
True
The key characteristic of historical cost accounting system is that it values assets based on their current market value.
False
Sole traders are legally separate from their owners for accounting purposes.
False
The key characteristic distinguishing a limited company from its owners is that the owners' liability is limited to their investment.
True
Materiality refers to the threshold quality demanded of all information in financial statements.
True
Financial accounting information includes the personal activities of the business owner.
False
For accounting purposes, a sole trader is regarded as a separate entity from its owner.
True
The key characteristic distinguishing a limited company from its owners is that the owners' liability is limited to their investment.
True
Materiality affects the clarity and relevance of financial statements by including only significant items.
True
Entities might 'revalue' certain non-current assets to their current market value in historical cost accounting.
True
Accounting principles help determine how assets and liabilities are valued.
True
A limited company is considered a separate legal entity from its owners.
True
The historical cost accounting system values assets based on their current market value.
False
Materiality is a threshold quality that is demanded of all information in the financial statements.
True
A sole trader is legally separate from their owners for accounting purposes.
False
The key characteristic distinguishing a limited company from its owners is that the owners' liability is limited to their investment.
True
Every transaction has two effects due to the dual aspect underlying double-entry bookkeeping.
True
Materiality refers to the threshold quality demanded of all information in financial statements.
True
Entities might 'revalue' certain non-current assets to their current market value in historical cost accounting.
False
Accounting principles help determine how assets and liabilities are valued.
True
The error in recording a sale of $100 as a sale of $1,000 would be considered immaterial if the total sales are $10 million.
True
Test your knowledge of accounting principles with this quiz. Explore the conventions and accepted practices that apply to accounting for transactions, including the recording of assets and liabilities, valuation, and the recording of income and expenditure.
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