Podcast
Questions and Answers
What principle supports the idea that a business operates as a separate economic unit from its owners?
What principle supports the idea that a business operates as a separate economic unit from its owners?
When should income be recognized according to accounting principles?
When should income be recognized according to accounting principles?
What is the assumption that a business will continue operating for the foreseeable future called?
What is the assumption that a business will continue operating for the foreseeable future called?
What must support all business transactions entered in accounting records?
What must support all business transactions entered in accounting records?
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What describes the financial period that a company uses to report its financial information?
What describes the financial period that a company uses to report its financial information?
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Which of the following best illustrates a lapse in business financial practices?
Which of the following best illustrates a lapse in business financial practices?
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Who are considered external stakeholders with interest in a company's financial health?
Who are considered external stakeholders with interest in a company's financial health?
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Which action would violate the principle of business entity?
Which action would violate the principle of business entity?
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Study Notes
Stakeholders and their Interests
- External Stakeholders: Individuals or groups outside the business with financial interests or claims. This includes those concerned with the business's debt repayment ability, potential investors, and the public interested in the business's economic contribution.
- Employees: Interested in salary, benefits, and retirement provisions.
Accounting Principles and Concepts
- Generally Accepted Accounting Principles (GAAP): Standards, conventions, and rules guiding financial record-keeping and statement preparation.
- Business Entity Concept: A business is treated as separate and distinct from its owner(s) and other entities. The owner's personal transactions are not mixed with business transactions.
- Periodicity Concept: Financial information is reported for specified time periods (e.g., fiscal year, calendar year). A fiscal year can begin on any month and cover 12 consecutive months. A calendar year runs from January 1st to December 31st.
- Going Concern Concept: Assumes a business will continue operating indefinitely, allowing assets and liabilities to be recorded at historical cost.
- Evidence Principle (or Objectivity Principle): All transactions must be supported by verifiable evidence.
- Revenue Recognition Principle: Income is recognized when earned (goods delivered or services rendered), not necessarily when payment is received.
- Expense Recognition Principle (or Matching Principle): Expenses are recognized when incurred (goods or services used), not when payment is made.
- Accounting Equation: Assets = Liabilities + Equity (This reflects always balanced accounts)
Key Accounting Tools
- Chart of Accounts: A list of all accounts used by a company, including their balances. It acts as a guide for bookkeepers.
- Trial Balance: A list of accounts showing the equality of debits and credits in the general ledger.
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Description
This quiz explores the roles of external stakeholders and their interests in a business, as well as foundational accounting principles such as GAAP, the business entity concept, and the periodicity concept. Test your understanding of how these elements interact and affect financial reporting and business operations.
