Accounting concepts and conventions 1

Chapter 3. OVERVIEW of ACCOUNTING CYCLE

by Thu Nga

Multiple Choice

Which report is more reliable?

• the first report

• the second report

​Question:

•Will there be a difference in the income statements for December and January under the accrual and cash bases of accounting?​

Multiple Choice

Will there be a difference in the income statements for December and January under the accrual and cash bases of accounting?

• Yes

• No

Fill in the Blanks

Under the

, my income statements will show $10,000 of revenues in December and none of those services will be reported as revenues in January

Fill in the Blanks

Under the

, my December income statement will show no revenues. Instead, the December services will be reported as January revenues under the cash method

​Example

​•Company A doing business in retailed selling of electronic products. Last year, the company applies the “first in - first out” method in evaluating its inventory.

​

​What inventory costing method should be applied in the current year?

Fill in the Blanks

What inventory costing method should be applied in the current year?

​Example

​•Due to the increase in selling volume, directors want to change evaluating method to Weighted - average to minimize accounting works.

​

​What should the accountant do?

Multiple Choice

What should the accountant do?

• The accountant has to disclose the cause and effects of the change in the notes of the financial statements

• The accountant can ignore the directors' request

• The account can use the new method at the request of Directors immediately

Multiple Choice

What happens if the company is not a going concern?

• the company is able to continue its business

• The entity will not be forced to halt operations and liquidate its assets in a near term at what may be very low fire-sale prices

• The entity will be forced to halt operations and liquidate its assets in a near term at what may be very low fire-sale prices

​Thinking:

Why do we need to assume that the business is a going concern?​

Multiple Choice

Is the small tech company going concern after the lawsuit?

• Yes

• No

​Example

A retailer commences business on 1 January and buys inventory of 20 washing machines, each costing $100. During the year he sells 17 machines at $150 each.

How should the remaining machines be valued at 31 December in the following circumstances?​

Multiple Choice

How should the remaining machines be valued at 31 December in case he is forced to close down his business at the end of the year and the remaining machines will realize only $60 each in a forced sale?

• $180

• $300

Multiple Choice

How should the remaining machines be valued at 31 December If the business is regarded as a going concern?

• $180

• $300

​Homework

​Pls at home, spend your time to read more about the other accounting concepts:

​- Business entity

​- Money measurement concept

​- Dual aspect concept

​- Realization concept

​- Materiality Concept