Accounting Principles

Question 1

GAAP means?

Answer 1

“generally accepted accounting principles”

Question 2

It consists of three
important sets of rules: (1) the basic accounting principles and guidelines, (2) the detailed rules
and standards issued by FASB and its predecessor the Accounting Principles Board (APB), and
(3) the generally accepted industry practices.

Answer 2

GAAP

“Generally Accepted Accounting Principles”

Question 3

What are the ten main accounting principles and guidelines?

Answer 3

1. Economic Entity Assumption
2. Monetary Unit Assumption
3. Time Period Assumption
4. Cost Principle
5. Full Disclosure Principle
6. Going Concern Principle
7. Matching Principle
8. Revenue Recognition Principle
9. Materiality
10. Conservatism

Question 4

The accountant keeps all of the business transactions of a sole proprietorship separate
from the business owner’s personal transactions.

Answer 4

Economic Entity Assumption

Question 5

Because of this basic accounting principle, it is assumed that the peso’s purchasing
power has not changed over time. As a result, accountants ignore the effect of inflation on
recorded amounts

Answer 5

Monetary Unit Assumption

Question 6

This accounting principle assumes that it is possible to report the complex and ongoing
activities of a business in relatively short, distinct time intervals such as the five months ended
May 31, 2019, or the 5 weeks ended May 1, 2019.

Answer 6

Time Period Assumption

Question 7

From an accountant’s point of view, the term “cost” refers to the amount spent (cash or
the cash equivalent) when an item was originally obtained, whether that purchase happened
last year or thirty years ago.

Answer 7

Cost Principle

Question 8

If certain information is important to an investor or lender using the financial statements,
that information should be disclosed within the statement or in the notes to the statement.

Answer 8

Full Disclosure Principle

Question 9

This accounting principle assumes that a business will continue to exist long enough to
carry out its objectives and commitments and will not liquidate in the foreseeable future.

Answer 9

Going Concern Principle

Question 10

This accounting principle requires companies to use the accrual basis of accounting.
The matching principle requires that expenses be matched with revenues.

Answer 10

Matching Principle

Question 11

Under the accrual basis of accounting (as opposed to the cash basis of accounting),
revenues are recognized as soon as a product has been sold or a service has been performed,
regardless of when the money is actually received.

Answer 11

Revenue Recognition Principle

Question 12

Because of this basic accounting principle or guideline, an accountant might be allowed
to violate another accounting principle if an amount is insignificant. Professional judgement is
needed to decide whether an amount is insignificant or immaterial.

Answer 12

Materiality

Question 13

The basic accounting principle leads accountants to anticipate or
disclose losses, but it does not allow a similar action for gains.

Answer 13

Conservatism

Question 14

It has incredible importance for both internal and external
stakeholders. They basically are a report card for the company; hence, it is important that they
are regulated and do not report misleading information.

Answer 14

Financial Statement