Classified Financial Statements

Question 1

What is the Principle of Consistency?

Answer 1

Accounting methods adopted should remain unchanged from period to period

Question 2

What is the Principle of Disclosure?

Answer 2

All information and explanation necessary for interpretation of reports and statements should be conveyed to users.

Question 3

What is the Principle of Materiality?

Answer 3

The principle means that the treatment of an item depends on its importance and accounting significance. (eg. pen is unimportant)

Question 4

What is the Matching Principle?

Answer 4

Matching of expenses with the revenue generated during the period by those expenses.

Question 5

What is the Accrual Basis of Accounting?

Answer 5

Recognizes revenue and expenses in the same period when they are earned or incurred, not when cash has been received or paid for that transaction.

Question 6

Why must financial statements be classified?

Answer 6

• compare with past and competitor’s results
• provide more meaningful summaries of financial data
• help stakeholders make decisions and predictions related to the business
• establish and pinpoint areas of responsibility and accountability