Accounting Principles & Concepts

What is the basic accounting equation?

• Assets = Liabilities - Equity

• Assets = Liabilities + Equity

• Liabilities = Assets + Equity

• Equity = Assets - Liabilities

Explain the accrual concept in accounting.

• The accrual concept in accounting recognizes revenues and expenses when they are incurred, regardless of when cash is exchanged.

• Accrual concept delays recognizing revenues and expenses

• Accrual concept is not a fundamental principle in accounting

• Accrual concept only considers cash transactions

Define the matching principle in accounting.

• Expenses should be recorded in the same accounting period as the related revenues.

• Revenues should be recorded after expenses

• Liabilities should be recorded at their current market value

• Assets should be recorded at their original cost

What is the difference between accounting principles and accounting concepts?

• Accounting principles are rules and guidelines, while accounting concepts are basic ideas and assumptions.

• Accounting principles are theoretical, while accounting concepts are practical.

• Accounting principles are flexible, while accounting concepts are rigid.

• Accounting principles are specific, while accounting concepts are general.

Discuss the historical cost convention in accounting.

• Depreciation is not considered in historical cost accounting.

• Historical cost convention is no longer used in modern accounting practices.

• Assets are recorded at their original cost when acquired.

• Liabilities are recorded at their current market value.

How does the consistency principle impact financial reporting?

• The consistency principle impacts financial reporting by allowing companies to change accounting methods frequently.

• The consistency principle impacts financial reporting by introducing unnecessary complexity in financial statements.

• The consistency principle impacts financial reporting by promoting uniformity and comparability in financial statements over different accounting periods.

• The consistency principle impacts financial reporting by discouraging transparency and accuracy in financial statements.

Explain the relevance of the materiality concept in accounting.

• The materiality concept in accounting focuses on irrelevant information to confuse users of financial reports.

• Accounting materiality concept is about including all available data in financial reports without filtering.

• The materiality concept in accounting ensures that only relevant information that could impact decision-making is included in financial reports.

• Materiality concept in accounting is only applicable to small businesses and not relevant for large corporations.

What are the qualitative characteristics of accounting information?

• Relevance, Reliability, Comparability, Consistency

• Accuracy

• Timeliness

• Verifiability

Discuss the conservatism principle in accounting.

• The conservatism principle in accounting encourages companies to overstate revenues and assets.

• The conservatism principle in accounting guides companies to be cautious in recognizing revenues and assets, but aggressive in recognizing expenses and liabilities.

• The conservatism principle in accounting advises companies to be aggressive in recognizing revenues and assets.

• The conservatism principle in accounting suggests recognizing expenses and liabilities cautiously.

Define the going concern concept in accounting.

• The going concern concept in accounting refers to the immediate liquidation of a business.

• Going concern concept implies that a business will only operate for a short period.

• The going concern concept in accounting assumes that a business will continue to operate indefinitely.

• The going concern concept in accounting is related to environmental sustainability.