Accounting principles

Question 1

Name all accounting principles not part of the fundamental identity and explain them

Answer 1

1) Going concern principles
Assuming that the business will continue in operation for the foreseeable future.

2) Business entity concept

Everything that belongs to the owner should be entirely seperated from the financial statements.

3) Monetary unit assumption

Financial statements are presented without taking into account changes in the purchasing power of money overtime (inflation)

4)The reporting period

What date each year

5) Accrual Accounting

Record when we take the transaction, not when we take the money. We record when the sales takes place

6) Preeminence of substance over form

Attention must be paid to the underlying substance

7) Cost constraint

The benefit obtain from the information must be greater then the cost incurred to produce it

8) prudence principle

playing it safe

Question 2

Accounting principles form the fundamental identity

Answer 2

1) Asset recognition

a ressource controlled by the entity
is a result of past events
future economics benefits are expected to flow to the entity

2) Liability recognition

• Current obligation
• Result of past events
• the settlement should result in a outflow that benefits everybody

3) Products recognition

4)Revenue recognition
- how and when revenue is to be recognized.
- revenues are recognized when realized and earned–not when cash is received.