Questions and Answers
What quality does accounting information need to have to be considered useful for decision-making?
Which of the following most accurately describes comparability in accounting?
What is the significance of understandability in accounting information?
Which statement best reflects the relevance of accounting information?
Signup and view all the answers
Which aspect of accounting helps users make comparisons over time or between different firms?
Signup and view all the answers
Which feature is essential for maintaining usefulness in financial accounting information?
Signup and view all the answers
In what circumstance can accounting information cease to be relevant?
Signup and view all the answers
Which of the following is a primary characteristic of accounting information needed for decision-making?
Signup and view all the answers
What is the primary characteristic of the cash basis of accounting?
Signup and view all the answers
Under the accrual basis of accounting, when is revenue recognized?
Signup and view all the answers
Which statement accurately describes the mixed or hybrid basis of accounting?
Signup and view all the answers
Which accounting basis would likely be used by a professional service provider like a lawyer?
Signup and view all the answers
In what scenario is the accrual basis of accounting considered more beneficial?
Signup and view all the answers
What is a primary disadvantage of using the cash basis of accounting?
Signup and view all the answers
Which accounting basis would be most appropriate for a not-for-profit organization?
Signup and view all the answers
What do all businesses need to understand regarding accounting principles?
Signup and view all the answers
What does the Matching Concept require in terms of revenue recognition?
Signup and view all the answers
Which of the following is NOT a consideration in the Matching Concept?
Signup and view all the answers
What is the primary purpose of accounting standards?
Signup and view all the answers
Which of the following best describes the role of periodicity in accounting?
Signup and view all the answers
What aspect of financial reporting is highlighted by government grants accounting?
Signup and view all the answers
How should fixed assets be treated according to the Matching Concept?
Signup and view all the answers
In tax accounting, which principle is primarily applied?
Signup and view all the answers
Which of the following statements is true regarding assets and liabilities?
Signup and view all the answers
Study Notes
Accounting Principles
- Fundamental norms and assumptions serve as a foundation for accounting systems.
- Universally adopted by accountants globally.
Definitions of Accountancy
- Accountancy encompasses the entire theoretical and practical framework of accounting (Kohler).
- Prof. Robert N. Anthony describes accounting as a system for collecting, analyzing, and reporting business transaction information in monetary terms.
Basis (Methods) of Accounting System
- Three primary methods of accounting:
- Cash Basis: Records actual cash receipts and payments. Revenue recognized upon cash receipt; expenses upon cash payment. Common among professionals (e.g., doctors, lawyers).
- Accrual (Mercantile) Basis: Revenue and expenses recorded when earned or incurred, regardless of cash movement. Recognizes income and expenses when relevant events occur.
- Mixed (Hybrid) Basis: Combines cash and accrual basis; revenue/assets recorded on a cash basis, expenses usually reflected on an accrual basis.
Information Relevance
- Only relevant information should be included, affecting business outcomes if disclosed.
- Relevant information enhances decision-making and should be timely and provide feedback.
Understandability of Accounting Information
- Information should enable users to grasp its significance easily.
- Financial data must be presented in a comprehensible manner, accommodating various users' understanding levels.
Comparability of Accounting Information
- Facilitates decision-making by allowing comparisons among alternatives.
- Like items must be reported similarly; unlike items reported differently for clear distinctions.
- Aids in assessing relative strengths and weaknesses of firms or periods.
Basic Accounting Terminologies
- Key terms essential for understanding accounting as it serves diverse purposes in the business landscape.
Matching Concept
- Revenues in an accounting period matched with related expenses incurred during that period.
- Takes into account only expenses pertinent to the accounting period.
- Adjustments made for outstanding/prepaid expenses and accrued/unearned revenues.
- Provisions for depreciation, bad debts, etc., are accounted for.
Accounting Standards (AS) and IFRS
- Provide frameworks for consistent financial reporting across different enterprises.
- Enhance comparability, reliability, and adequacy of financial statements.
- Defined as codes of conduct established by regulatory bodies to govern accounting practices.
- Cover recognition, measurement, treatment, presentation, and disclosure of accounting transactions.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz explores the foundational principles of accountancy that are universally adopted by accountants. It includes key definitions and concepts related to the role of accounting systems in business enterprises. Test your understanding of these essential norms that guide accounting practices.