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Accounting Principles Quiz

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Questions and Answers

What principle states that a business entity is separate and distinct from its owner or investor?

Business Entity Principle

Revenue should be recognized when it is earned, regardless of when the payment is received.

Accrual Accounting principle

What does the Monetary Unit Principle state about the amounts in financial statements?

Stated in a single monetary unit

Which principle requires financial statements to be presented with supporting evidence?

Objectivity Principle Signup and view all the answers

What principle dictates that assets and income should not be overstated while liabilities and expenses should not be understated?

Conservatism Principle Signup and view all the answers

According to the Matching Principle, how should costs be treated?

Matched with revenue generated Signup and view all the answers

Explain the Materiality Principle in accounting.

In case of assets that are immaterial to make a difference in the financial statements, the company should instead record it as an expense. Signup and view all the answers

How does the Cost Principle impact accounting practices?

Accounts should be recorded initially at cost. Signup and view all the answers

What is the significance of the Going Concern Principle in accounting?

It assumes that the business will continue to operate indefinitely. Signup and view all the answers

Explain the Objectivity Principle in financial reporting.

Financial statements must be presented with supporting evidence. Signup and view all the answers

What does the Disclosure Principle entail in accounting?

All relevant and material information should be reported. Signup and view all the answers

How does the Accrual Accounting Principle differ from Cash Accounting?

Revenue should be recognized when earned regardless of collection, and expenses should be recognized when incurred regardless of payment. Signup and view all the answers

Define the Matching Principle in accounting.

Cost should be matched with the revenue generated. Signup and view all the answers