Underlying Principles

Question 1

Name the 10 Underlying Principles of Accounting.

Answer 1

1. Historical Cost
2. Revenue Recognition
3. Matching
4. Consistency
5. Disclosure
6. Objectivity/verifiability
7. Separate entity
8. Continuity/going concern
9. Unit of measure
10. Periodicity

Question 2

As a measurement basis, it is the most objectively determinable and is the proper basis for the recording of many asset acquisitions, expenses, costs, creditor equities and owner equities

Answer 2

Historical Cost

Question 3

It is recognized when it is earned, measurable, and collectible

Answer 3

Revenue Recognition

Question 4

Net income or loss for an accounting period is determined by the process of association realized revenues with the those expenses and expired costs necessary to generate them. This often requires estimates and allocations

Answer 4

Matching

Question 5

To enhance F/S comparability, an entity employs the same accounting procedures from period to period. Changes within GAAP should be justified by more appropriate presentation of financial position and results of operations

Answer 5

Consistency

Question 6

F/S should include all information germane to the formation of valid business decisions. The user must neither be burdened with an information overload nor misled by the exclusion of material facts

Answer 6

Disclosures

Question 7

The economic activity which underlies F/S must not only be substantive in fact but also presented without bias so as to be subject to similar determination by other technically competent individuals

Answer 7

Objectivity/Verifiability

Question 8

A business enterprise is a discrete unit of accountability whose economic activities are kept separate from those of its owners and other business enterprises

Answer 8

Separate Entity

Question 9

In the absence of evidence to the contrary, an entity is assumed to have a life that is indefinite or sufficiently long for it to accomplish its objectives and fulfill its legal obligations

Answer 9

Continuity/going concern

Question 10

The common denominator upon which all financial data are based is the monetary unit.

Answer 10

Unit of measure

Question 11

The life of an enterprise is divided into artificial time periods to facilitate reporting and decision making

Answer 11

periodicity