Review of Lesson 6

An accounting guideline which allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments. In other words, the accountants believe that the company will not liquidate in the near future.

(a)  

Which accounting concept should be considered if the owner of a business takes goods from inventory for his personal use?​ ​ ​ ​ (a)  

• The business entity concept
• The substance over form concept
• The accrual concept
• The going concern concept

​ ​ (a)   states that omitting or misstating this information could influence users of the financial statements

• The materiality concept
• The consistency concept
• The accrual concept
• The going concern concept

​ ​ (a)   means that similar items should receive a similar accounting treatment?

• Consistency
• Substance over form
• Accrual
• Going concern

Refers to the provision of information to users quickly enough for them to take action. Information becomes obsolete and useless if it is not reported within time.

(a)  

Assets are usually valued under which basis?

• Replacement cost

• Historical cost

• Net realizable value

• Current cost

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 are always kept separate for the purpose of preparing accounts.

• None of the above.

The financial accounting process provides information about economic activities of an enterprise for a specified accounting period that is shorter than the life of the enterprise.

• time period

• going concern

• measurement of economic resources and obligations

• measurement in terms of money

Enables users to identify and understand similarities in and differences among items. Information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about other entities and with similar information about the same entity for another period or date.

(a)  

The consistency concept means that

• 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 answers.

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