Financial Accounting Principles

What is the basic accounting equation?

• Equity = Assets - Liabilities

• Assets = Liabilities + Equity

• Assets = Equity - Liabilities

• Liabilities = Assets - Equity

Explain the concept of accrual accounting.

• Accrual accounting only considers cash transactions.

• Accrual accounting is based on the barter system.

• Accrual accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

• Accrual accounting records expenses before they occur.

What is the principle of consistency in accounting?

• Consistency in accounting involves changing accounting methods frequently.

• Consistency in accounting allows for random application of accounting standards.

• Consistency in accounting refers to the practice of applying the same accounting principles and methods from one accounting period to the next.

• Consistency in accounting means using different accounting principles each year.

What is the relevance of the going concern principle in financial accounting?

• The going concern principle assumes the business will shut down soon.

• The going concern principle is irrelevant in financial accounting.

• The going concern principle ensures that financial statements are prepared under the assumption that the business will continue to operate in the foreseeable future.

• The going concern principle focuses on short-term profitability only.

Define the principle of objectivity in accounting.

• Financial statements should be biased towards the company's interests

• Financial statements should be based on objective evidence and free from bias.

• Financial statements should be based on subjective opinions

• Financial statements should be influenced by personal feelings

Explain the principle of relevance in financial accounting.

• The principle of relevance in financial accounting is not important for decision-making.

• The principle of relevance in financial accounting emphasizes the importance of including only information that can influence decision-making in the financial statements.

• The principle of relevance in financial accounting focuses on historical data only.

• The principle of relevance in financial accounting does not impact financial statements.

What is the principle of comparability in accounting?

• Comparability refers to the ability to calculate financial ratios.

• Comparability means financial information is only relevant for one specific period.

• Comparability refers to the ability to compare financial information across different periods or companies to identify trends and make informed decisions.

• Comparability is the process of adjusting financial statements to match industry standards.

Explain the concept of cash basis accounting.

• Cash basis accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

• Cash basis accounting only considers cash transactions.

• Cash basis accounting is based on the barter system.

• Cash basis accounting records expenses before they occur.

What is the purpose of the income statement in financial accounting?

• The income statement shows the financial position of a company at a specific point in time.

• The income statement provides information about the cash flows of a company.

• The income statement reports the revenues and expenses of a company over a specific period, resulting in the net income or loss.

• The income statement lists all the assets and liabilities of a company.

Journal is a book of ______entry

• Secondary

• Original

• First

• None of these