Chapter 2: Accounting Concepts and Principles Flashcards
True or False
Accounting concepts and principles, in the basic sense, are guidelines that accountants follow when recording and communicating accounting information
True
True or False
The application of the separate entity concept is necessary so that the financial position and performance of a business can be measured reliably
True
True or False
The opposite of going concern is coming concern
False
True or False
According to the accrual basis of accounting, a business should record a sale only when the sale price is collected
False
True or False
Financial statements are prepared at least annually because of the matching concept
False
True or False
A reporting or accounting period that starts on July 1 of the current year and ends on June 30 of the following year is called a calendar year period
False
True or False
The government ordered the shutting of Entity A’s factories because of noncompliance with regulations. Entity A is a going concern
False
True or False
The accounting standards used in the Philippines are the same as the standards used internationally
True
True or False
The Conceptual Framework is a standard
False
True or False
According to the materiality concept, an item that is considered material by one business is considered material by all other businesses.
False
True or False
Entity B is going out of business because its business owner lost all the money in the casino. Entity B is a going concern
False
True or False
The purpose of the separate entity concept is to report a true and fair picture of business financial affairs
True
True or False
The accountant of Entity A, a big corporation, rounded-off amounts in the financial statements into nearest millions. This is an acceptable method of reporting because of the concept of materiality
True
True or False
Consistency means like transactions must be accounted for in like manner
True
True or False
The cost of processing and communicating financial information should exceed the expected benefits to be derived from its use
False
True or False
Information is considered material if its omission or misstatement could influence the decisions of financial statements users
True
True or False
When reporting information in its financial statements, Entity A strives for a balance between detail and conciseness - having in mind that neither too much detail nor too little information helps users make good decisions. This is an application of the accrual basis of accounting
False
True or False
After becoming an accountant, Mr. A worked as an external auditor in one of the biggest auditing firms in our country. Two years later, an international auditing firm offered Mr. A an external audit job abroad, which Mr. A accepted. Mr. A will be applying different accounting standards in his new job compared to those that he has applied in his previous job.
False
True or False
The process of establishing international accounting standards (on which the accounting standards used in the Philippines are based) is a democratic process in that a majority of practicing accountants around the world must agree with a standard before it becomes implemented.
True
True or False
Information that does not affect the decision-making of users is considered irrelevant and immaterial. Accordingly, that information is not reported in the financial statements.
True
Preparing financial statements at least annually is an application pf which of the following accounting concepts?
a. historical cost
b. accrual basis
c. stable monetary unit
d. time period
d. time period
Which of the following statements is incorrect regarding accounting concepts?
a. under the accrual basis of accounting, income is recognized when earned, not when cash is collected, and expenses are recognized when incurred, not when cash is disbursed
b. under the going concern concept, the business entity is assumed to carry on its operations for an indefinite period of time
c. under the separate entity concept, the business is treated separately from its owners
d. under the time period concept, the life of the business is divided into series of reporting periods
e. under the cost-benefit concept, the cost of processing and communicating information should exceed the benefit expected to be derived
e. under the cost-benefit concept, the cost of processing and communicating information should exceed the benefit expected to be derived
Entity A acquires a stapler. Instead of recognizing the cost of the stapler as an asset to be subsequently depreciated, Entity A immediately charges it as an expense. This is an application of which one of the following concepts?
a. prudence
b. materiality
c. cost-benefit
d. b and c
d. b and c
What concept justifies the use of the accrual basis and historical cost concepts?
a. going concern assumption
b. materiality constraint
c. consistency characteristics
d. monetary unit assumption
a. going concern assumption
Entity A prepares annual financial statements every December 31. Entity A uses what type of reporting or accounting period
a. calendar year
b. fiscal year
c. interim year
d. christmas season
a. calendar year
The assumption that a business entity will not be sold or liquidate in the near future is known as the
a. economic entity assumption
b. monetary unit assumption
c. conservatism assumption
d. going concern
d. going concern
Valuing assets at their liquidation values rather than their cost is inconsistent with the
a. periodicity assumption
b. matching principle
c. materiality constraint
d. historical cost principle
d. historical cost principle
Under this concept, amounts in financial statements are stated in terms of a common unit of measure, and inflation is generally ignored
a. prudence
b. materiality
c. stable monetary unit
d. ignoring concept
c. stable monetary unit
When recording business transactions in the books of accounts, the accountant of Entity A rounds-off amounts into nearest pesos. For example, the accountant records a 1,983.45 amount as 1,983. Which of the following statements is correct?
a. the recording method of Entity A’s accountant is acceptable under the materiality concept
b. the recording method of Entity A’s accountant is acceptable under the historical concept
c. the recording method of Entity A’s accountant is not appropriate
d. the accountant should be fired
a. the recording method of Entity A’s accountant is acceptable under the materiality concept
The term “standards” is used in the practice of accounting to refer to which of the following?
a. basic accounting concepts
b. conceptual framework
c. PFRSs
d. CPA
c. PFRSs
Mr. A owns a cafe. When Mr. A drinks coffee from his cafe, he pays for it even though he is the owner. Mr. A is most likely to be applying which of the following accounting concepts?
a. prudence
b. accrual basis
c. separate entity
d. coffee-drinking concept
c. separate entity
Ms. B acquires inventories worth 100,000. However because Ms. B acquired in bulk, the supplier gave Ms. B a discount of 10,000. Under the historical cost concept, Ms. B should initially record the inventories purchased at
a. 110,000
b. 100,000
c. 90,000
d. 10,000
c. 90,000
Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of the inventory as an asset rather than an outright expense. When the inventory is subsequently sold, Entity A recognizes the cost of the inventory sold as an expense, in the same period the sale revenue is recognized. This an application of which of the following accounting concepts?
a. stable monetary unit
b. materiality
c. matching
d. proprietary
c. matching
On Day 1, a customer buys goods form Entity A and promises to pay the sale price on Day 30. Entity a recognized sales revenue on Day 1 rather than on Day 30. This is an application of which of the following accounting concepts?
a. prudence
b. accrual basis
c. consistency
d. materiality
b. accrual basis
Entity A is owned by Mr. X and Ms. Y. Which of the following transactions does not violate the separate entity concept and therefore is appropriately recorded in the accounting records of Entity A?
a. Mr. X purchases groceries for his home consumption
b. Mr. X gives Ms. Y chocolate and flowers on Valentine’s Day
c. Ms. Y provides capital to Entity A
d. Ms. Y provides capital to Entity B, another entity.
c. Ms. Y provides capital to Entity A
You went to Aling Nena’s Sari-Sari Store to buy “patis”. You don’t have cash so you promised to pay Aling Nena net week. Upon giving you the “patis”, Aling Nena records the sale in a notebook. She even reminded you that you have not yet paid for the 1 bottle of soy sauce and 3,000 cans of sardines that you purchased last month. By recording your unpaid purchases, Aling Nena is applying which of the following accounting concepts?
a. prudence
b. accrual bass
c. separate entity
d. listahan concept
b. accrual bass
You went abroad and forgot to pay Aling Nena. Aling Nena contacted you 10,000 times on your Facebook reminding you of your debt but you repeatedly ignored her; you even unfriended her. Feeling hopeless and with a teary-eyed and stuffy nose, Aling Nena reluctantly crossed out dues in her notebook. Aling Nena is applying which of the following accounting concepts?
a. prudence
b. historical cost
c. separate entity
d. no conscience concept
a. prudence
Entity A, an established business, purchases two staplers costing 300 each. Entity A chargess the cost of one of the staplers as an expense but recognizes the cost of the other stapler as an asset. which of the following concepts is violated? a. materiality b. historical cost c. consistency d, stapler concept
c. consistency
Entity A, a big corporation. purchase a calculator for 500. Entity A immediately charges the cost as an expense. This is acceptable under which of the following concepts?
a. prudence
b. cost-benefit
c. materiality
d. b and c
d. b and c
Accounting information is reported in the financial statements only if they are deemed useful to users. the usefulness of information as assessed in terms of its
a. qualitative characteristics
b. cuteness
c. prettiness
d. all of these
a. qualitative characteristics
