Accounting Principles

Question 1

GAAP

Answer 1

Generally Accepted Accounting Principles

Question 2

FASB

Answer 2

Financial Accounting Standards Board

Question 3

Accounting Principle 1
Economic Entity Assumption

Answer 3

The business and its financial transactions are separate and distinct from the owner’s personal financial transactions

Question 4

Accounting Principle 2
Monetary Unit Assumption

Answer 4

Financial transactions in the US are measured in US dollars

Question 5

Accounting Principle 3
Time Period Assumption

Answer 5

The financial transactions and statements cover a specific span of time (week(s), month(s), year(s)) and is shown clearly on all financial reports and statements.

Question 6

Accounting Principle 4
Cost Principle

Answer 6

Financial transactions are shown, forever, as the original and historical cost. We DO NOT adjust for inflation or changes in value.

Question 7

Accounting Principle 5
Full Disclosure Assumption

Answer 7

All pertinent information must be disclosed on the financial statements.

Question 8

Accounting Principle 6
Going Concern Principle

Answer 8

The business is going to last into the foreseeable future.

Question 9

Accounting Principle 7
Matching Principle

Answer 9

We must use the accrual basis of accounting. Expenses are matched with revenue.

Question 10

Accounting Principle 8
Revenue Recognition Principle

Answer 10

Revenue/sales/income is shown in the financial statements when the service is performed or the good is sold no matter when the payment is actually received

Question 11

Accounting Principle 9
Materiality Principle

Answer 11

Don’t sweat it if the amount is insignificant

Question 12

Accounting Principle 10
Conservatism Principle

Answer 12

When faced with a choice on financial statements, choose the conservative option:
- Decrease in net income and/or
- Decrease in assets and/or
- Increase in liabilities