Chap 3-4

Question 1

Assumes that a business enterprise is separate and distinct from its owner.

Answer 1

Business Entity Concept

Question 2

Expects that the business will continue to exist indefinitely.

Answer 2

Going Concern Principle

Question 3

States that all business transactions are recorded in only one unit of measurement and currency.

Answer 3

Monetary Unit Principle

Question 4

Asserts that the business shall always record the activities of a business on a regular basis or in a standard time period.

Answer 4

Periodicity Principle

Question 5

Standard (January 1 - December 31)

Answer 5

Calendar Year

Question 6

Starts on any month of the year (May 1 - April 30)

Answer 6

Fiscal Year

Question 7

Requires that financial statements be prepared on an accrual basis. Assets, liabilities, and the owner’s equity shall be recognized based on the period they relate regardless of whether or not cash is immediately collected.

Answer 7

Accrual Assumption

Question 8

All revenues and expenses should match or balance. All expenses related to revenue-generating transactions must be recorded the moment revenue is recognized.

Answer 8

Matching Principle

Question 9

All transactions should be supported with unbiased and verifiable evidence.

Answer 9

Objectivity or Reliability Principle

Question 10

States that one must record the original acquisition cost of the transaction.

Answer 10

Historical Cost Principle

Question 11

All necessary information should be provided for transparency.

Answer 11

Full Disclosure Principle

Question 12

The cost of providing information shall not exceed its utility to users

Answer 12

Cost-Benefit Principle

Question 13

Include all transactions in the financial statements is their omission that would otherwise influence the decisions of a person using the financial statements.

Answer 13

Materiality Principle

Question 14

Recognize expenses and liabilities as soon as possible, but only recognize revenues and assets when they are assured of being received.

Answer 14

Conservatism Principle

Question 15

It is the exchange of values between two parties.

Answer 15

Transaction

Question 16

Must always have a dual effect; for every value received, there is an equal value parted.

Answer 16

Business Transaction

Question 17

No exchange of values and should not be recorded in the books of the identity.

Answer 17

Non-Financial Transaction

Question 18

Also known as the balance sheet equation. It relies on the double-entry system of accounting, where every transaction results in
a dual effect.

Answer 18

Accounting Equation

Question 19

Every transaction
affects at least two accounts
(debit and credit)

Answer 19

Dual Effect

Question 20

Economic value the company controls
and used for the benefit of business.

Answer 20

Assets

Question 21

Debts the business has incurred.

Answer 21

Liabilities

Question 22

Amount that would remain if
the entity liquidated all of its assets and paid all of its debts.

Answer 22

Owner’s Equity

Question 23

Accounting Equation

Answer 23

A = L + OE

Question 24

adding two more elements derived from the distinct components of Owner’s Equity – Revenues and Expenses.

Answer 24

Expanded Accounting Equation

Question 25

Expanded Accounting Equation

Answer 25

A = L + OE + (R - E)