Principles in Accounting

Question 1

What is Business Entity?

Answer 1

The business and owner are two different entities and should not be treated as one. Personal expenses should not be treated as business expenses

Question 2

Define Money Measurement

Answer 2

All business transactions must be recorded in terms of money to provide a common unit of measurement

Question 3

Define Going Concern

Answer 3

This means the business should operate for the foreseeable future unless there are plans of liquidation or to cease trading

Question 4

What is Historical Cost?

Answer 4

Assets should be recorded in the balance sheet at their value when bought and not their current value

Question 5

Define Prudence/Conservatism

Answer 5

The accountant should stay on the safe side and account for least favorable outcomes that may affect income

Question 6

What is Materiality?

Answer 6

Anything in the financial statements should be of importance to investors

Question 7

What is Consistency?

Answer 7

Companies should choose the most suitable accounting methods and apply them in every period

Question 8

What are Accruals/Matching?

Answer 8

Revenue is recognized when earned not when cash is received. Expenses are recognized when incurred not when paid. (net profit = revenues earned-expenses incurred)