13 Questions
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
What principle dictates that assets and income should not be overstated while liabilities and expenses should not be understated?
Conservatism Principle
According to the Matching Principle, how should costs be treated?
Matched with revenue generated
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.
How does the Cost Principle impact accounting practices?
Accounts should be recorded initially at cost.
What is the significance of the Going Concern Principle in accounting?
It assumes that the business will continue to operate indefinitely.
Explain the Objectivity Principle in financial reporting.
Financial statements must be presented with supporting evidence.
What does the Disclosure Principle entail in accounting?
All relevant and material information should be reported.
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.
Define the Matching Principle in accounting.
Cost should be matched with the revenue generated.
Test your knowledge on fundamental accounting principles such as business entity, going concern, time period, monetary unit, objectivity, and cost principle. Learn about the importance of presenting financial statements accurately and supported by evidence.
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