Chapter 26

Question 1

Principle ensuring that liabilities and expenses are not understated and assets and income are not overstated in the financial statements of a business

Answer 1

Prudence principle

Question 2

Principle stating that revenue can only be recognised when it is earned

Answer 2

Realisation principle

Question 3

Principle stating that only transactions or events that can be measured in terms of money are included in the financial statements

Answer 3

Money measurement principle

Question 4

Principle stating that financial information is only material to the financial statements if it will affect the decisions of interested parties using the information

Answer 4

Materiality principle

Question 5

Principle stating that assets should be valued at the cost at which they were acquired

Answer 5

Historic cost principle

Question 6

When financial information can be verified by interested parties and if interested parties use this information they get the same result

Answer 6

Reliability

Question 7

Principle implying that the business will continue to operate in the near future which is at least 12 months

Answer 7

Going concern principle

Question 8

Principle requiring two entries to be posted for every transation. One account should be debited and one account should be credited

Answer 8

Duality principle

Question 9

Principle stating that similar transactions should be recorded using the same accounting method year after year. This creates consistency for users of accounting information

Answer 9

Consistency principle

Question 10

Principle requiring that the affairs of the business are treated as being separate from the non-business activities of its owner(s)

Answer 10

Business entity principle

Question 11

Principle requiring a business to record in its financial statements revenues and any related expenses in the same accounting period

Answer 11

Matching principle

Question 12

What are the 10 accounting principles?

Answer 12

Matching, business entity, consistency, duality, going concern, historic cost, materiality, money measurement, prudence, realisation

Question 13

What is the consequence if a business is not considered to be a going concern and is going to liquidate in the coming year?

Answer 13

Assets will be listed in the statement of financial position at their net realisable value, not at historic cost, and all assets will be listed as current assets

Question 14

Is something always material or not material?

Answer 14

No, what is considered material to one company may not be material to another

Question 15

What are some examples of items that are left out of financial statements in line with the money measurement principle?

Answer 15

Customer satisfaction, brand recognition, employee skills and efficiency of administrative processes

Question 16

Where there is a conflict between two principles, which one always overrules all the others?

Answer 16

Prudence