GAAP principles

Question 1

Business entity

Answer 1

The business and the owner must be kept separate

Question 2

Historical cost

Answer 2

Means assets are shown at their original cost price

Question 3

Matching

Answer 3

Expenses related to income earned must be recorded in the same financial period with entries for accruals and prepaid entries

Question 4

Materiality

Answer 4

Important information in the decision making of stakeholders is either highlighted or shown separately whereas unimportant information is not highlighted

Question 5

Prudence principle

Answer 5

An accountant should record liabilities and expenses aa soon as they occur but incomes are only recorded when they are assured or realised

Question 6

Simplified prudence principal

Answer 6

Do not underestimate the amount of expenses and do not overestimate revenues

Question 7

Going concern

Answer 7

Financial statements are prepared on the assumption that the business is expected to continue for the foreseeable future and this affects the way in which items are valued