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Questions and Answers
What is the purpose of Generally Accepted Accounting Principles (GAAP)?
What is the purpose of Generally Accepted Accounting Principles (GAAP)?
- To provide a standardized framework for accounting practices (correct)
- To manage personal finances of business owners
- To assist in auditing a company's financial statements
- To define the financial status of a company
Under the accrual basis of accounting, when should revenue be recognized?
Under the accrual basis of accounting, when should revenue be recognized?
- When cash is received
- At the end of the fiscal year
- When the transaction is recorded in the ledger
- When the service is performed or goods are sold (correct)
Which of the following best describes the Going Concern principle?
Which of the following best describes the Going Concern principle?
- The business will operate indefinitely into the foreseeable future. (correct)
- The business is expected to cease operations shortly.
- The business will transition into a different market.
- The business will be sold to another entity.
What does the Matching Principle require?
What does the Matching Principle require?
What is meant by the term Materiality in accounting?
What is meant by the term Materiality in accounting?
Which principle emphasizes recording and reporting should be free from bias?
Which principle emphasizes recording and reporting should be free from bias?
When do financial transactions need to be summarized and reported according to the Time Period concept?
When do financial transactions need to be summarized and reported according to the Time Period concept?
What does the Cost Principle state about amounts shown in financial reports?
What does the Cost Principle state about amounts shown in financial reports?
Flashcards
Economic Entity
Economic Entity
The business owner's personal finances are separate from the business's finances.
Accrual Basis of Accounting
Accrual Basis of Accounting
Revenue is recorded when earned, and expenses are recorded when incurred, regardless of when cash is received or paid.
Going Concern
Going Concern
The company will continue operating indefinitely, and closure is not imminent.
Monetary Unit
Monetary Unit
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Time Period
Time Period
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Cost Principle
Cost Principle
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Full Disclosure Principle
Full Disclosure Principle
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Matching Principle
Matching Principle
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Study Notes
Generally Accepted Accounting Principles (GAAP)
- GAAP refers to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
- GAAP in the Philippines is applied through Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS).
Economic Entity
- Personal transactions of the business owner are separate from the business's transactions.
Accrual Basis of Accounting
- Revenue is recorded when earned.
- Expenses are recorded when incurred, regardless of cash receipt or payment.
Going Concern
- The company will continue operating indefinitely.
Monetary Unit
- Transactions are expressed in a specific monetary unit.
Time Period
- Transactions are summarized and reported at regular time intervals.
- Calendar year runs from January 1 to December 31.
- Fiscal year can start any time and extend for 12 months.
Cost Principle
- Financial reports show historical costs.
Full Disclosure Principle
- Sufficient information is provided for informed judgments.
Matching Principle
- Revenues and expenses are matched to determine profit.
Revenue Recognition Principle
- Revenue is recognized when goods are sold or services are rendered, regardless of cash receipt.
Materiality
- Materiality refers to the impact of omissions or misstatements of information in financial statements on users.
- If a user's actions would be altered if the omitted or misstated information was known, the item is material.
Conservatism
- Choose the alternative that results in the lower income or resource if two acceptable alternatives exist.
Objectivity
- Recording and reporting should be independent and free of bias.
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Description
This quiz explores key concepts of Generally Accepted Accounting Principles (GAAP), including the economic entity concept, accrual basis of accounting, and the going concern assumption. It also covers the importance of monetary units and time periods in accounting. Test your knowledge of these fundamental accounting principles.
