1.1 Concepts of Financial Accounting

Question 1

A primary objective of external financial reporting is

a. Direct measurement of the value of a business enterprise
b. Direct measurement of the enterprise’s stock price
c. Provision of information that is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise.
d. Establishment of rules for accruing liabilities.

Answer 1

c. Provision of information that is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise.

Question 2

The accounting measurement that is not consistent with the going concern concept is

a. Realization
b. Historical cost
c. Liquidation Value
d. The transaction approach

Answer 2

c. Liquidation Value

Financial accounting principles assume that a business entity is a going concern in the absence of evidence to the contrary. The concept justifies the use of depreciation and amortization schedules, and the recording of assets and liabilities using attributes other than liquidation value

Question 3

Balance sheet is also called

Answer 3

The statement of financial position

Question 4

Basic accounting equation

Answer 4

Assets = liabilities + stockholder’s equity

Question 5

_______________ is the assumption that the entity will continue operating indefinitely and will not be liquidated in the near future

Answer 5

The going-concern assumption

Question 6

___________ records the financial effects of transactions and other events and circumstances when they occur rather than when their associated cash is paid or received

Answer 6

Accrual accounting