Accounting Principles

Question 1

Accrual concept

Answer 1

Business must recognise expenses incurred and income earned regardless of cash flow

Question 2

Matching concept

Answer 2

The expenses incurred in the year should be matched against the income earned in the same year so that profit for the year can be calculated.

Question 3

Prudence concept

Answer 3

Business must not overstate profits and asset values. Thus, it must account for possible losses but not possible gains.

Question 4

Monetary concept

Answer 4

Transactions must be recorded in monetary terms. Thus, only transactions which can be translated into monetary terms can be recorded. Workers’ loyalty is thus not included in the accounting records.

Question 5

Objectivity concept

Answer 5

All transactions recorded must be verifiable and objective. Thus, documentary proofs should be available as support for recording.

Question 6

Consistency concept

Answer 6

A method / practice adopted should be consistently applied over time.

Question 7

Accounting entity concept

Answer 7

Owner and business are treated as two different entities. Owner’s personal transactions are not recorded in the business books.

Question 8

Going concern concept

Answer 8

When business is set up, the intent is to keep the business in operation in the foreseeable future.

Question 9

Accounting period concept

Answer 9

The business life is divided into shorter periods so that periodical evaluation can be made.

Question 10

The bookkeeper of Sigma did not adjust for prepaid rent when preparing the income statement. Which principle is violated?

Answer 10

Matching Principle / Accrual Principle

Question 11

Business A changed its depreciation on motor van from straight-line to reducing balance method. Which principle was violated?

Answer 11

Consistency Principle

Question 12

When owner paid for his own home utilities with the business cheque, the bookkeeper debited utilities account. Which principle was violated?

Answer 12

Accounting Entity Principle

Question 13

Name the accounting principle which requires the use of documents.

Answer 13

Objectivity Principle

Question 14

Inventory is always valued at cost price or net realisable value. Which principle is followed?

Answer 14

Prudence Principle

Question 15

The business accounts for possible defaults of payment by its trade receivables even though the debtor has not been declared bankrupt. Which principle is followed?

Answer 15

Prudence Principle

Question 16

Although the business paid for 15 months rental in 2016, the income statement showed only 12 months’ rental. Which principle is followed?

Answer 16

Matching Principle

Question 17

When the owner took some goods for own use, the bookkeeper recorded it as a reduction in owner’s equity. Which principle was being followed?

Answer 17

Accounting Entity Principle