Chapter 6 - Accounting Concepts

Question 1

Going Concern

Answer 1

The assumption that a business will continue to trade for the foreseeable future

Question 2

Accruals

Answer 2

Expenses and revenues are matched for a time period when calculating profit

Question 3

Consistency

Answer 3

Accounting methods are applied in the same way in each accounting period.

Question 4

Prudence

Answer 4

Where there is doubt, asset and profit values are under rather than overstated, never assume profit until realised, but losses should be dealt with when anticipated

Question 5

Materiality

Answer 5

If the amount involved is relatively insignificant, then the usual accounting treatment of an item can be set aside.

Question 6

Realisation

Answer 6

Revenue should not be recorded in the accounts until it is realised, i.e. when there is cash or the promise of cash

Question 7

Business Entity

Answer 7

An accounting system will contain records of that organisation only

Question 8

Realisable Value

Answer 8

Sale value

Question 9

Net Realisable Value

Answer 9

Sale value less any costs necessary to incur a sale

Question 10

Objectivity

Answer 10

Factual information is preferred because it is likely to be beyond dispute