Accounting principles

Question 1

Define business entity principle

Answer 1

The business is treated as being completely seperate from the owner of the business

Question 2

Define consistency principle

Answer 2

The accounting methods must be used consistently from one accounting period to the next

Question 3

Define principle of duality

Answer 3

Every transaction is recorded twice - once on the debit side and once on the credit side

Question 4

Define going concern principle

Answer 4

The accounting records are maintained on the basis that the business will continue to operate for an indefinite period of time

Question 5

Define historic cost principle

Answer 5

All assets and expenses are initially recorded at their actual cost

Question 6

Define matching principle

Answer 6

The revenue of the accounting period is matched against the costs of the same period

Question 7

Define materiality principle

Answer 7

The individual items which will not significantly affect either the profit or the assets of a business do not need to be recorded seperately

Question 8

Define money measurement principle

Answer 8

Only information which can be expressed in terms of money can be recorded in the accounting records

Question 9

Define prudence principle

Answer 9

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

Question 10

Define realisation principle

Answer 10

Revenue is only regarded as being earned when the legal title to goods passes from the seller to the buyer

Question 11

Define capital expenditure

Answer 11

Money spent on purchasing, improving or extending non-current assets

Question 12

Define revenue expenditure

Answer 12

Money spent on running a business on a day-to-day basis

Question 13

Define capital receipt

Answer 13

Money received by a business from a source other than the normal trading

Question 14

Define revenue receipt

Answer 14

Money received by a business from normal trading activities