Concept Multiple Choice Flashcards
The prudence concept is the compelling reason for which of the following accounting treatment:
a) reporting as an asset the unsold portion of goods purchased for sale.
b) setting up an allowance for receivables not to be recovered.
c) accounting for the personal expenses of the proprietor met by the business as drawings.
d) accounting for sales though a portion of which is not received by the balance sheet
B
Which of the following statements is the most appropriate explanation of the prudence concept:
a) it’s better to understate profit rather than overstate it
b) income should not be accounted for until realised in cash
c) it’s better to account for expenses even if there is uncertainty on how much is payable
d) faced with uncertainty an accountant should exercise a degree of caution
D
The expenses relating to the proprietor and his household should be treated as drawings rather than as business expenses on the basis of which of the following accounting concepts?
a) substance over form concept
b) separate entity concept
c) prudence concept
d) matching concept
B
£580 to paid for a laptop computer is written off as an expense rather than capitalised because the business does not capitalise items that cost less than £1000. This is an application of which concept?
a) materiality
b) prudence
c) going concern
d) money measurement
A
How does the use of Historical Cost concept understate assets and overstate profit in times of rising prices?
i) The assets may be reported in terms of pound Sterling of a lower value
ii) liabilities may be reported in terms of pound Sterling of a higher value
iii) depreciation/ cost of sales in the Statement of income fail to reflect current value
iv) Non-current assets may be reported in terms of currency with a higher value
a) iii and iv
b) ii and iii
c) i only
d) i and ii
A
Stella’s confectionery has systematically cultivated good customer relationship both by showing courtesy and by sending Christmas gifts. She feels that the goodwill she has built up is worth £100,000. Which accounting concept prevents her from reporting goodwill as an asset in her Statement of financial position?
a) going concern
b) money measurement
c) prudence
d) separate entity
B
The convention of consistency refers to the use of accounting principles:
a) among enterprises belonging to different industries
b) across accounting periods
c) within industries
d) throughout the accounting period
e) none of the above
B
The charging of depreciation expense over the life of an asset rather than the immediate full expensing of its costs is an example of:
a) consistency
b) matching
c) prudence
d) reliability
e) none of the above
B
Which of the following statements best describes the term going concern?
a) the income less expenses of an entity are negative
b) the potential to continue to the flow of cash and cash equivalents to the entity
c) the ability of the entity to continue in operation for the foreseeable future
d) when current assets less current liabilities become negative
e) none of the above
C
Which of the following terms best describes information in financial statements that is neutral?
a) relevant
b) understandable
c) unbiased
d) reliable
e) none of the above
C
Which of the following terms best describes financial statements whose basis of accounting recognises transactions and other events when they occur?
a) accrual basis of accounting
b) invoice basis of accounting
c) cash basis of accounting
d) going concern basis of accounting
e) none of the above
A
