Podcast
Questions and Answers
Which accounting concept assumes that an organization will continue to operate in the foreseeable future?
Which accounting concept assumes that an organization will continue to operate in the foreseeable future?
The Stable Monetary Concept states that the Philippine peso is a fluctuating unit of measure, making it difficult to accurately track financial transactions.
The Stable Monetary Concept states that the Philippine peso is a fluctuating unit of measure, making it difficult to accurately track financial transactions.
False (B)
What is the primary purpose of the Periodicity Concept?
What is the primary purpose of the Periodicity Concept?
To divide an entity's life into meaningful time periods for accurate reporting.
The ______ states that assets are recorded at their actual cost, not their perceived value.
The ______ states that assets are recorded at their actual cost, not their perceived value.
Signup and view all the answers
What accounting concept emphasizes the separation of an organization's financial activities from those of its owners and other entities?
What accounting concept emphasizes the separation of an organization's financial activities from those of its owners and other entities?
Signup and view all the answers
Match the accounting concepts to their descriptions:
Match the accounting concepts to their descriptions:
Signup and view all the answers
The Objective Principle states that accounting records should be based on verified, objective evidence to ensure accuracy and usefulness.
The Objective Principle states that accounting records should be based on verified, objective evidence to ensure accuracy and usefulness.
Signup and view all the answers
Explain the significance of the Objective Principle in accounting.
Explain the significance of the Objective Principle in accounting.
Signup and view all the answers
The Expense Recognition Principle dictates that expenses should be recognized when cash is paid for goods or services.
The Expense Recognition Principle dictates that expenses should be recognized when cash is paid for goods or services.
Signup and view all the answers
Which of the following is NOT a criterion for a liability to exist?
Which of the following is NOT a criterion for a liability to exist?
Signup and view all the answers
The ______ principle states that a company should use the same accounting methods from period to period to ensure comparability.
The ______ principle states that a company should use the same accounting methods from period to period to ensure comparability.
Signup and view all the answers
What is the primary purpose of the Materiality Principle?
What is the primary purpose of the Materiality Principle?
Signup and view all the answers
Match the following financial statement elements with their definitions:
Match the following financial statement elements with their definitions:
Signup and view all the answers
Which of the following statements is TRUE regarding the Revenue Recognition Principle?
Which of the following statements is TRUE regarding the Revenue Recognition Principle?
Signup and view all the answers
What is the main difference between the Expense Recognition Principle and the Revenue Recognition Principle?
What is the main difference between the Expense Recognition Principle and the Revenue Recognition Principle?
Signup and view all the answers
In a corporation, owner's equity is referred to as stockholders' equity.
In a corporation, owner's equity is referred to as stockholders' equity.
Signup and view all the answers
Study Notes
Fundamental Concepts of Accounting
- Accounting is based on the concept of an entity. This means a business or organization is separate from its owner(s). Transactions are kept separate.
- The periodicity concept subdivides the entity's life into equal time periods for reporting purposes. This enables users to get timely information to make decisions about the future.
Periodicity Concept
- A calendar year is a 12-month period from January 1st to December 31st.
- A fiscal year is composed of 12 months, but it starts any month other than January.
- Interim periods are time periods within an accounting period (weekly, monthly, quarterly, or semi-annual).
Stable Monetary Concept
- The Philippine peso is a reasonably stable unit of measure.
- Accountants can add and subtract pesos as if each peso has the same purchasing power.
Going Concern Concept
- An accounting concept stating that the business will continue operating for a foreseeable future.
- The assumption of a going concern is used to calculate the depreciation of assets for their useful life (until they reach a value of zero).
Objective Principle
- Accounting is based on the most accurate and useful data.
- The data should be reliably verified by independent observers.
- This avoids using whims and opinions.
Historical Cost Principle
- Assets are recorded at their original cost, not at some estimated market value.
- Assets are recorded at the actual price paid for the item.
Revenue Recognition Principle
- Revenue is recognized when goods are delivered or services are rendered.
- Regardless of when payment is received, revenue is recorded when the item or service is delivered or completed
Expense Recognition Principle
- Expenses are recognized in the period in which goods and services are used to produce revenue.
- Expenses are recognized when incurred, not necessarily when paid.
Materiality
- The significance of information affects decisions & evaluations.
- Materiality is judged based on the size and nature of the item.
Consistency Principle
- The same accounting method should be used from period to period within a single business or organization.
- Consistency over time makes comparisons of accounting information easier.
Elements of Financial Statements
Statement of Financial Position (Balance Sheet)
- Assets: Present economic resources controlled by the entity.
- Examples: Cash, Inventory, Machine, Building, Copyright
- Liabilities: Present obligations of the entity.
- Examples: Accounts Payable, Wages, Tax
- Equity: Residual interest in the entity's assets after deducting liabilities.
Statement of Financial Performance (Income Statement)
- Income: Increase in assets or decrease in liabilities resulting in an increase in equity.
- Expenses: Decrease in assets or increase in liabilities leading to a decrease in equity.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your knowledge of fundamental accounting concepts with this quiz. Questions cover key principles like the Stable Monetary Concept, Expense Recognition Principle, and the Objective Principle. Perfect for accounting students or anyone seeking to understand financial fundamentals.
