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