IGCSE Accounting Recent Accounting Principles

What is the going concern principle?

• Accounting records are prepared assuming that the business will continue to operate in the foreseeable future.

• Income and expense should be accounted for in the same way they were accounted for in previous periods.

• Profit should not be anticipated and losses should be written off as soon as they are known.

• Revenue and costs should be recognised as they are earned or incurred, not when the money is received or paid.

Why is inventory valued at an expected resale value when this is lower than the original cost when purchases?

• to calculate the rate of inventory turnover

• to ensure the balancing of the statement of financial position

• to prevent profit being recorded before it is earned

• to recognise losses as soon as they are incurred

What does the going concern principle mean?

• Non-current assets must be shown at expected sales value.

• Revenue is recognised when ownership of goods passes to the

  customer.

• The business will continue to operate for the foreseeable future.

• The financial statements should always use the same accounting

  principles.

The employees of a business are highly skilled but this is not recorded in the financial statements of the business.

Which accounting principle is being applied?

• going concern

• money measurement

• prudence

• realisation

Bingwa purchased premises costing $85 000 in February 2018. Identical premises to those owned by Bingwa were sold in April 2019 for $98 000. No adjustment was made in Bingwa’s accounting records in April 2019.

Which accounting principle did Bingwa apply?

• business entity

• materiality

• Historic Cost

• realisation

Which accounting principle requires profit to be recognised as earned when the legal

ownership of goods passes to the purchaser?

• going concern

• money measurement

• prudence

• realisation

Insurance paid by a business included $400 relating to the owner’s private house.

This amount was not included in the income statement.

Which accounting principle was applied?

• accruals (matching)

• business entity

• duality

• prudence

A trader always depreciates his motor vehicles using the reducing (diminishing) balance method.

Which accounting principle is he applying?

• consistency

• duality

• going concern

• realisation

Which item incorrectly applies the matching principle?

• Including staff expertise as an asset and writing it off over the working life of the staff

• including a value for unused stationery in statement of financial position as an asset

• providing for doubtful debts as an expense in the year the sales took place

• recording telephone costs incurred (have happened) but not yet billed

A business’s year end is 31 March. On 31 March 2016 the business received an order from a

credit customer. The goods were not sent to the customer until 5 April 2016. This sale was not

included in the financial statements for the year ended 31 March 2016.

Which accounting concept(s) are being applied?

1 business entity

2 realisation

3 materiality

• 1 and 2

• 1 only

• 2 and 3

• 2 only