Fundamental Concepts

Question 1

Going Concern

Answer 1

Business is assumed to continue operations for the foreseeable future, unless there is a reason to believe otherwise

Question 2

Accruals

Answer 2

Profit is the excess of revenue over expenses (not the excess of cash receipts over cash payments)

Question 3

Prudence

Answer 3

Use caution when making accounting judgements. (Report actual and expected losses immediately and profits when they arise)

Question 4

Consistency

Answer 4

The same method of accounting used to deal with a transaction should be applied consistently over time

Question 5

Matching

Answer 5

When measuring income, expenses should be matched to revenue which they helped generate in the same reporting period as when the revenue was realised

Question 6

Historic cost

Answer 6

Assets should be recorded at their historic (acquisition) cost