Accounting Concepts and Conventions

The cost of a tape dispenser has been charged to an expense account although it will still be in use in 10 years time.

Which accounting concept is being applied?

• materiality concept

• prudence concept

• going concern concept

• accrual concept

A sole trader has sold his private house but has not recorded anything about it in the business records.

What accounting concept is being applied?

• confidentiality

• historical cost

• business entity

• prudence

A debt has been written off as bad even if there is still a chance that debtor may eventually pay it.

What concept is being applied?

• prudence

• going concern

• materiality

• substance over form

A machine has been bought for $5 000 and entered in the machine account at that amount even though it is worth $12 000.

What accounting concept is being applied?

• historical cost

• dual aspect

• prudence

• realisation

An expert says that the value of the management team of the company is worth well over a million dollars yet nothing is entered for it in the books.

What accounting concept is being applied?

• money measurement

• materiality

• substance over form

• dual aspect

A motor van broke down in December 2017. The repair bill was not paid until 2018, yet it was treated as a 2017 expense.

What accounting concept is being applied?

• accruals

• historical cost

• realisation

• materiality

A customer saw a carpet in 2017 and said she might well buy it. She telephoned in 2018 and asked for the carpet to be delivered. The item was not treated as a sale in 2017 but was treated as a sale in 2018.

What accounting concept is being applied?

• realisation

• accruals

• prudence

• going concern

The final day of the financial year saw the passing of a new law which rendered the goods that we sell illegal and the business would have to close down. The accountant says that the assets in the financial statements cannot be shown at cost.

What accounting concept is being applied?

• going concern

• historical cost

• realisation

• substance over form

We have been told that we cannot show our asset of motor car at cost in one year and market value in the next year.

What accounting concept is being applied?

• consistency

• going concern

• historical cost

• prudence

We have shown all items of machinery costing less than $100 as machinery operating expenses.

What accounting concept is being applied?

• materiality

• going concern

• prudence

• historical cost