Accounting Concepts

When preparing the financial statements of an entity, the going concern concept should be applied, only if the entity concerned . . .

• is not expected to incur losses in the foreseeable future.

• will never be wound up.

• is expected to continue in operational existence for the foreseeable future at a level of activity not significantly less than its current level of activity.

• is not expected to be able to continue operating.

The going concern concept means that, when preparing accounts, . . .

• profit should not be anticipated and losses should be provided for as soon as they are foreseen.

• items should normally be accounted for in a manner consistent with the way in which they were accounted for in previous years.

• unless there is specific information to the contrary, the firm for which the accounts are being prepared should be assumed to continue in operational existence for the foreseeable future at a level of activity not significantly less than the current level of activity.

• revenues and costs are recognised as they are earned or incurred, not as money is received or paid.

The entity concept means that . . .

• because a firm is separate and distinct from its owners, those owners cannot have access to its assets unless the firm ceases to trade.

• accounts must be prepared for every firm.

• the financial affairs of a firm and its owner(s) are always kept separate for the purpose of preparing accounts.

• None of the above.

The effect of the accruals concept is that . . .

• similar items should be accounted for in a similar way from one accounting period to the next.

• revenue and profit should not be anticipated.

• net profit is the difference between revenues and expenses.

• None of the above.

The accruals concept. . .

• applies to revenues and expenses only.

• applies to assets and liabilities only.

• applies to revenues, expenses, assets and liabilities.

• is not a fundamental accounting concept.

An accounting period is . . .

• any period for which an entity chooses to prepare its accounts.

• a calendar year.

• any twelve-month period.

• None of the above.

The consistency concept means that . . .

• when preparing the accounts of a finn, one should normally account for similar items in the same way from one accounting period to the next.

• firms in the same industry must account for similar items in the same way.

• firms may never change the way in which they prepare their accounts.

• None of the above.

Which of the four fundamental accounting concepts (listed below) is sometimes referred to as the matching concept . . .

• the accruals concept.

• the prudence concept.

• the going concern concept.

• the consistency concept.