Accounting Conventions

Question 1

Define Going Concern

Answer 1

• The assumption that a firm will continue to operate within a year time, and has no intention to liquidate

Question 2

Define Prudence

Answer 2

• The fact that an accountant should be cautious and not overly optimistic

Question 3

Define Consistency

Answer 3

• The fact that information should be produced in the same way with limited errors in order to increase comparability

Question 4

Define Business Entity

Answer 4

• The fact that for the sake of accounting, the Business and the owner are two separate and distinct beings

Question 5

Define Dual Aspect

Answer 5

• The fact that for every transaction, there will be two equal accounting entries made (DEBK)

Question 6

Define Objectivity

Answer 6

• The fact that Financial Statements should be objective, verifiable, bias-free and based on evidence

Question 7

Define Money Measurement

Answer 7

• The fact that non-quantifiable resources are excluded from the balance sheet

Question 8

Define Historic Cost

Answer 8

• The fact that the value of Assets shown on the SOFP are what you paid for it, not what it could be sold for.

Question 9

Define Matching

Answer 9

• The fact that you have to include everything that has helped you generate THIS YEARS sales, so expenses must be current

Question 10

Define Realisation

Answer 10

• The fact that Customer requirements are met as per the order/contract, customers formally accept goods and services and Legal claim for payment has been set up.

Question 11

What is the valuation of Inventory tied to?

Answer 11

• The LOWER value of the Cost or the Net Realisable Value