5 - Assumptions & Principles

Question 1

We assume there is a separate accounting entity for each business organization.

Answer 1

Entity Assumption (The owners and the corporation are separate.)

Question 2

In the absence of information to the contrary, a business is assumed to have an indefinite life, that is, it will continue to be a going concern.

Answer 2

Going-Concern Assumption (continuity assumption)

Question 3

Assets, liabilities, equities, revenues, expenses, gains, losses, and cash flows are measured in terms of the monetary unit of the country in which the business is operated.

Answer 3

Unit-of-Measure Assumption

Question 4

The indefinite life of a business is broken into smaller time frames, typically a year, for evaluation purposes and reporting purposes.

Answer 4

Time Period Assumption

Question 5

4 Assumptions: “Entirely from your GUT”

Answer 5

Entity, Going Concern, Unit of Measure, Time Period

Question 6

4 Principles “REM Doggies”

Answer 6

Revenue recognition, Expense recognition, Measurement, full Disclosure

Question 7

___ is recognized when an entity satisfies a performance obligation.

Answer 7

Revenue

Question 8

Recorded on the financial stmt (acct concept)

Answer 8

Recognized

Question 9

Cash or near cash (AR) is rec’d (economic concept)

Answer 9

Realized

Question 10

Often referred to the matching principle

Answer 10

Expense Recognition Principle (exp are matched with rev those exp generated)

Question 11

Recognize expenses in time period the entity derives a benefit:

Answer 11

Exp Recognition Principle