GAAPs

Question 1

Business entity concept

Answer 1

The accounting for a business or organization is kept separate from the personal affairs of its owner, other business or organization

Question 2

Going concern concept

Answer 2

Assumes that a business will continue to operate unless it is known otherwise

Question 3

Principle of conservatism

Answer 3

The accounting for a business should be fair and reasonable. The results should not overstate nor understate the affairs of the business

Question 4

Objectivity principle

Answer 4

The accounting will be recorded on objective evidence. Different people looking at the evidence will arrive at the same value for the transaction

Question 5

Revenue recognition convention

Answer 5

Revenue should be recorded in accounts at the time the transaction is completed

Question 6

Matching principle

Answer 6

Each expense related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn

Question 7

Time period concept

Answer 7

Accounting takes place over specific time periods known as fiscal periods. The fiscal periods should be of equal length when used to measure the financial progress of the business.

Question 8

Cost principle

Answer 8

Accounting for purchases must be recorded at their cost price

Question 9

Consistency principle

Answer 9

Accountants should apply the same methods and procedures from period to period. When changes are made, they must be explained clearly on the financial statements

Question 10

Materiality principle

Answer 10

Accountants are required to use GAAPs except when it would be expensive or difficult and when it makes no real difference if the rules are ignored

Question 11

Full disclosure principle

Answer 11

Any and all information that affects the full understanding of a company’s financial statements must be included with the financial statements