ACCOUNTING PRINCIPLES

Question 1

WHAT ARE THE ACCOUNTING PRINCIPLES ?

Answer 1

• ACCRUAL ACCOUNTING
• GOING CONCERN
• BUSINESS ENTITY
• MONEY MEASUREMENT
• MATERIALITY
• CONSISTENCY
• PRUDENCE

Question 2

ACCRUAL ACCOUNTING

Answer 2

• The principle states that Income and Expenses are matched so that they relate to the same goods or services and the same accounting period.
• Requires income and expenses are reported in the periods they are incurred even if receipts or payments occur in a different period.

Question 3

GOING CONCERN

Answer 3

Principle presumes financial statements are prepared with the expectation that a business will continue to trade in the foreseeable future.

Question 4

BUSINESS ENTITY

Answer 4

financial information is recorded and reported separately from the owner’s personal financial information….
- Principle states financial statement report and record on the activities related to the business only

Question 5

MONEY MEASUREMENT

Answer 5

activities are measured in monetary units… currency

Question 6

MATERIALITY

Answer 6

• This principle states that items with a low value are not worthwhile recording in the accounts separately.
• Concerns the relative size of an item and its effect on decisions

Question 7

CONSISTENCY

Answer 7

use of the same accounting principles and methods from year to year within a company

Question 8

PRUDENCE

Answer 8

profits and assets should not be overstated and losses and liabilities should not be understated