Going Concern and Accrual Basis Quiz

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Financial statements are prepared on the assumption that the reporting entity is a __________ concern and will continue in operation for the foreseeable future.

False

If an intention or need exists for the reporting entity to enter liquidation or to cease trading, the financial statements may have to be prepared on a different __________.

False

Accrual accounting depicts the effects of transactions and other events on a reporting entity’s economic resources and claims in the periods in which those effects occur, regardless of whether the resulting cash receipts and payments occur in a different __________.

False

The Conceptual Framework also refers to 'accrual accounting' as 'the _________ concept' or simply as 'accruals.'

False Signup and view all the answers

In transactions between businesses, it is common for payment not to be made on the same date that an order is made or that goods are transferred, but this should not delay the __________ being recorded.

False Signup and view all the answers

Accrual accounting captures the effects of transactions and other events on a reporting entity's economic resources and claims in the periods in which those effects occur, regardless of whether the resulting cash receipts and payments occur in a different __________.

False Signup and view all the answers

Accrual accounting requires transactions to be recorded when the cash changes hands.

False Signup and view all the answers

Prepaid expenses are costs that have been consumed, but not yet paid for.

False Signup and view all the answers

The consistency principle is intended to make financial reporting more difficult for users to make comparisons.

False Signup and view all the answers

Consistency should be applied from period to period within a reporting entity, but not across entities.

False Signup and view all the answers

Prudence requires that assets and income are overstated, and liabilities and expenses are understated.

False Signup and view all the answers

Accounting policies specify the exact amount of expenditure to be measured.

False Signup and view all the answers

Accrual accounting records transactions when the sale/purchase takes place rather than when cash changes hands.

True Signup and view all the answers

Consistency should be applied 'from period to period' within a reporting entity and 'across entities' in the same period.

True Signup and view all the answers

Prudence principle ensures that assets and income are not overstated and liabilities and expenses are not understated.

True Signup and view all the answers

Accounting standards are a set of rules and guidelines governing the preparation and presentation of all financial statements that purport to show a ‘true and fair view’.

True Signup and view all the answers

IAS 1 states that financial statements should present fairly the financial position, financial performance, and cash flows of an entity.

True Signup and view all the answers

Accounting policies are the specific principles, bases, conventions, rules, and practices adopted by an enterprise in preparing and presenting financial statements.

True Signup and view all the answers

What does accrual accounting depict?

The effects of transactions on economic resources and claims, regardless of cash timing Signup and view all the answers

What does the assumption of a 'going concern' mean for financial statement preparation?

The entity will continue in operation for the foreseeable future Signup and view all the answers

What is the intention behind the prudence principle in accounting?

To understate assets and income, and overstate liabilities and expenses Signup and view all the answers

In what situation would financial statements have to be prepared on a different basis?

When there is an intention or need for liquidation or to cease trading Signup and view all the answers

What does the consistency principle intend to achieve in financial reporting?

Enable users to make meaningful comparisons Signup and view all the answers

What are prepaid expenses in accounting?

Costs that have been consumed, but not yet paid for Signup and view all the answers

In accrual accounting, when should the initial sale and purchase transaction be recorded?

25 January Signup and view all the answers

What does the consistency principle intend to achieve in financial reporting?

Enhance comparability Signup and view all the answers

What is the exercise of prudence intended to prevent in financial statements?

Both a and b Signup and view all the answers

What do prepaid expenses represent in the context of accrual accounting?

Costs that have been consumed but not paid for Signup and view all the answers

What do accounting policies specify in financial statement preparation?

Exact amount of expenditure to be measured Signup and view all the answers

How does consistency contribute to financial statement comparability?

By making comparisons more meaningful Signup and view all the answers

What does the prudence principle require when making judgments under uncertainty?

To take a careful approach Signup and view all the answers

What is the purpose of accounting standards in relation to financial statements?

'To provide general guidelines for preparation and presentation of financial statements' Signup and view all the answers

'For instance, it should be possible for users to understand how a business has performed in the year by comparing it to the results of the previous year.' This statement pertains to which accounting principle?

'Consistency principle' Signup and view all the answers

'IAS 1 sets out the way in which final accounts should be presented.' This statement refers to which aspect of financial reporting?

'Importance of fair presentation' Signup and view all the answers

'The Conceptual Framework also refers to 'accrual accounting' as 'the _________ concept' or simply as 'accruals.' This statement highlights which term used interchangeably with 'accrual accounting'?

'Matching' Signup and view all the answers

'In transactions between businesses, it is common for payment not to be made on the same date that an order is made or that goods are transferred, but this should not delay the __________ being recorded.' Which term best completes this statement?

'Transaction' Signup and view all the answers

Going Concern and Accrual Basis Quiz

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Questions and Answers

Financial statements are prepared on the assumption that the reporting entity is a __________ concern and will continue in operation for the foreseeable future.

If an intention or need exists for the reporting entity to enter liquidation or to cease trading, the financial statements may have to be prepared on a different __________.

Accrual accounting depicts the effects of transactions and other events on a reporting entity’s economic resources and claims in the periods in which those effects occur, regardless of whether the resulting cash receipts and payments occur in a different __________.

The Conceptual Framework also refers to 'accrual accounting' as 'the _________ concept' or simply as 'accruals.'

In transactions between businesses, it is common for payment not to be made on the same date that an order is made or that goods are transferred, but this should not delay the __________ being recorded.

Accrual accounting captures the effects of transactions and other events on a reporting entity's economic resources and claims in the periods in which those effects occur, regardless of whether the resulting cash receipts and payments occur in a different __________.

Accrual accounting requires transactions to be recorded when the cash changes hands.

Prepaid expenses are costs that have been consumed, but not yet paid for.

The consistency principle is intended to make financial reporting more difficult for users to make comparisons.

Consistency should be applied from period to period within a reporting entity, but not across entities.

Prudence requires that assets and income are overstated, and liabilities and expenses are understated.

Accounting policies specify the exact amount of expenditure to be measured.

Accrual accounting records transactions when the sale/purchase takes place rather than when cash changes hands.

Consistency should be applied 'from period to period' within a reporting entity and 'across entities' in the same period.

Prudence principle ensures that assets and income are not overstated and liabilities and expenses are not understated.

Accounting standards are a set of rules and guidelines governing the preparation and presentation of all financial statements that purport to show a ‘true and fair view’.

IAS 1 states that financial statements should present fairly the financial position, financial performance, and cash flows of an entity.

Accounting policies are the specific principles, bases, conventions, rules, and practices adopted by an enterprise in preparing and presenting financial statements.

What does accrual accounting depict?

What does the assumption of a 'going concern' mean for financial statement preparation?

What is the intention behind the prudence principle in accounting?

In what situation would financial statements have to be prepared on a different basis?

What does the consistency principle intend to achieve in financial reporting?

What are prepaid expenses in accounting?

In accrual accounting, when should the initial sale and purchase transaction be recorded?

What does the consistency principle intend to achieve in financial reporting?

What is the exercise of prudence intended to prevent in financial statements?

What do prepaid expenses represent in the context of accrual accounting?

What do accounting policies specify in financial statement preparation?

How does consistency contribute to financial statement comparability?

What does the prudence principle require when making judgments under uncertainty?

What is the purpose of accounting standards in relation to financial statements?

'For instance, it should be possible for users to understand how a business has performed in the year by comparing it to the results of the previous year.' This statement pertains to which accounting principle?

'IAS 1 sets out the way in which final accounts should be presented.' This statement refers to which aspect of financial reporting?

'The Conceptual Framework also refers to 'accrual accounting' as 'the _________ concept' or simply as 'accruals.' This statement highlights which term used interchangeably with 'accrual accounting'?

'In transactions between businesses, it is common for payment not to be made on the same date that an order is made or that goods are transferred, but this should not delay the __________ being recorded.' Which term best completes this statement?

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