Accounting Principles

Question 1

Accounting Entity

Answer 1

It is the convention in which regards the business having a separate existence to the owner for accounting purpose. Thus, transactions are recorded separately.

Question 2

Monetary

Answer 2

States that an item must be assigned a monetary value before being recorded in an accounting system, in Australia the value would be AUD.

Question 3

Historical Cost

Answer 3

Assumes that the business transactions are recorded in terms of their cost at the time of purchase.

Question 4

Materiality

Answer 4

Refers to the importance of an item to the particular entity.

Question 5

Accounting Period

Answer 5

It requires that the life of a business be divided into equal parts of reporting periods. These periods can be as long as up to a year but must remain the same once chosen.

Question 6

Going Concern

Answer 6

This is the assumption that the business will continue to operate for the foreseeable future and its records, should, therefore, be kept on that basis. However, the convention is not to be assumed if it is evident that the business will close down in the near future, thus assets be shown at the liquidation value (current sale value.)