Accounting Principles

Question 1

Going concern principle

Answer 1

Assumes that the life of the business is continuous, and it’s records are kept on that basis.

Question 2

Reporting period principle

Answer 2

States that the life of the business must be divided into periods of time to allow reports to be prepared, and the accounting records should reflect the period in which a transaction occurs.

Question 3

Historical cost principle

Answer 3

States that the transactions should be recorded at their original purchase price, as this value is verifiable by source document evidence.

Question 4

Consistency principle

Answer 4

States that accounting methods used by the business should be kept the same from one period to the next.

Question 5

Conservatism principle

Answer 5

Gives guidance on how to record uncertain events and estimates.

Question 6

Monetary unit principle

Answer 6

States that all items must be recorded in monetary terms, that is in the currency of the country of location where reports are being prepared.

Question 7

Entity principle

Answer 7

States that the business is separate from the owner, and it’s records should be kept on this basis.