Accounting Principle and Policy

‘Revenue should only be regarded as earned when the legal title of goods and services passes

from the seller to the buyer.’

To which accounting principle does this statement refer?

• consistency

• matching

• money measurement

• realisation

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.

Rashid’s financial year ends on 31 December. He paid rent on 1 February, 1 May, 1 August and

1 November.

An adjustment was made in the income statement for rent prepaid.

Which accounting principle was applied?

• duality

• matching

• money measurement

• prudence

At the end of the financial year, a company did not account for the unused stationary valued

at $50.

Which accounting principle did the company apply?

• matching

• materiality

• money measurement

• prudence

A trader wrote off the balance on a credit customer’s account as irrecoverable.

Which accounting principle was applied?

• business entity

• consistency

• money measurement

• prudence

A limited company applied the accounting objective of comparability in preparing its financial

statements.

What is the effect of this on the interested parties?

• They can be sure that information in the financial statements is up to date.

• They can identify similarities with the financial statements of other businesses.

• They can understand the financial statements easily.

• They can use the financial statements in decision-making.

Kamika’s financial statements did not comply with the accounting principle of money

measurement.

What had Kamika done?

• included a value for the skill of her employees

• forgot to include prepaid insurance

• recorded her drawings in wages and salaries

• valued her inventory above original cost

Which accounting policy requires that the information in financial statements is free from

significant errors and bias?

• comparability

• consistency

• reliability

• understandability

The application of which accounting principle makes it easier to compare financial statements

year-on-year?

• business entity

• consistency

• duality

• going concern

To finance further expansion, a business owner paid $10 000 into the business bank account.

In the ledger, a debit entry was made in the bank account and a credit entry made in the capital

account.

Which accounting principles were being applied?

• business entity and prudence

• business entity and duality

• matching and duality

• matching and prudence