Accounting Principles Quiz

A fundamental accounting concept stating that the business is treated as a separate entity from its owners. This means that the business's transactions are recorded separately from the owner's personal transactions.

This concept assumes that a business will continue to operate in the foreseeable future. This principle allows businesses to record long-term assets like buildings and equipment as they are expected to generate future benefits.

This principle states that all business transactions should be recorded in monetary terms. This allows for consistent comparison of transactions across time and between different entities.

This concept requires that once an accounting method is chosen, it should be used consistently from period to period. This allows for easier comparison of financial information over time.

This principle emphasizes caution and conservatism in accounting. It suggests that businesses should record potential losses as soon as they are likely to occur, but defer recording potential gains until they are realized. This helps prevent overstating profits.

This concept focuses on the significance of information. It aims to ensure that only material (important) information that would influence a user's decision is disclosed. Minor items are aggregated or grouped together.

This principle requires that revenues be recognized when earned and expenses be recognized when incurred. It ensures matching the costs of generating revenue with the revenue itself.

This principle emphasizes objectivity and fairness in accounting. It requires financial statements to be truthful and unbiased.

Non-current assets are long-term resources owned and controlled by a business. They are expected to generate economic benefits over a period longer than one year. They can be intangible (no physical form) or tangible (have physical form).

Capital expenditures are costs incurred to acquire or enhance non-current assets, increasing their value and useful life. Revenue expenditures are expenses incurred in the normal course of business operations, maintaining assets but not increasing their value.

Depreciation is the systematic allocation of the cost of a tangible non-current asset over its useful life. It reflects the gradual reduction in value due to wear and tear, obsolescence, or usage. The straight-line method spreads the cost evenly over the asset's useful life, while the reducing balance method allocates more depreciation in early years.

A non-current assets register is a record that tracks each non-current asset, including its description, purchase date, cost, useful life, depreciation method, and accumulated depreciation. It helps businesses monitor asset values and depreciation.

Assets coding involves assigning unique numbers or codes to non-current assets. This system makes it easier to identify, track, and manage assets, ensuring accuracy and consistency in record-keeping.

An allowance for doubtful debts is an estimated amount set aside to cover potential losses from bad debts. It is created by recording a debit to the bad debt expense account and a credit to the allowance for doubtful debts account.

An allowance for discounts is an estimated amount set aside to account for potential discounts that might be granted to customers for early payment. It is recorded by debiting an expense account and crediting the allowance for discounts account.

Accruals are expenses incurred but not yet paid, while prepayments are expenses paid in advance but not yet incurred. Both represent adjustments to financial statements to reflect a true picture of the business's financial performance.

A legally binding agreement between a buyer and seller for the transfer of ownership of goods. Breach occurs when one party fails to fulfill their obligations under the contract.

A right to buy a specific asset over a period of time with regular payments; a legal agreement between a hirer (buyer) and owner (seller) of an asset where the hirer makes periodic payments for the asset.

An agreement where a lessor (owner) rents an asset to a lessee (user) for a specific period.

A type of lease where the lessee has the option to purchase the asset at the end of the lease term.

A legal relationship between an employer and employee, outlining rights and obligations.

A type of insurance that covers the insured for a specific risk, such as death, illness, or property damage.

The minimum amount of money that an insurance company must have available to meet its financial obligations.

The principle that the insured must have a financial interest in the subject matter of the insurance policy.

The exchange of information between two or more people to create shared understanding.

It helps in sharing information, building relationships, and achieving organisational goals.

The process of transferring information from a sender to a receiver through a chosen channel.

These include verbal, nonverbal, written, and visual communication.

These are established ways to send and receive messages within an organization, influenced by their structure and culture.

Any factor that hinders successful communication, like noise, distractions, or cultural differences.

Ethical communication upholds honesty, respect, and fairness, ensuring clear and responsible information exchange.

Disagreements that arise in the workplace, which can be resolved through negotiation, mediation, or conflict management strategies.

A legal entity that is separate from its owners, allowing for limited liability and perpetual existence.

A company owned by a single individual.

A company meeting certain criteria, like limited turnover and number of employees, with specific legal benefits and regulations.

The process of legally forming a company, involving registering with the relevant authorities.

Agreements entered into before a company is formed, which may bind the company after incorporation.

Individuals who initiate and set up a company, having specific duties and responsibilities.

A document outlining a company's key details, including its purpose, powers and capital structure.

A document that outlines the company's internal regulations such as the rights and responsibilities of the directors.

A concept crucial for long-term financial reporting, it assumes the business will continue to operate into the foreseeable future, allowing for the valuation of assets like buildings and equipment.

This principle states that all financial transactions must be recorded in a common language: currency. This makes comparing transactions across time and various entities possible.

This principle focuses on the importance of consistent accounting methods over time, facilitating meaningful comparison of financial information across reporting periods.

A principle that promotes caution in accounting. It advises recognizing potential losses immediately, but delaying recognition of potential gains until they are actually realized.

This concept focuses on providing relevant financial information that impacts users' decisions. It encourages the inclusion of important details while aggregating minor items to avoid overwhelming information.

A cornerstone accounting principle that aligns revenue recognition with the expenses incurred to generate that revenue, ensuring a clear picture of profitability.

This principle emphasizes objectivity and fairness in accounting. It requires financial statements to be transparent, unbiased, and truthful.