Assumptions, Characteristics and Accounting Elements

What are accounting assumptions?

• Basic principles that underlie the preparation of financial statements

• A type of financial statement

• A method of calculating taxes

• A software used for accounting

What is the accounting entity assumption?

• The accounting entity assumption is the principle that separates the transactions of the business from the personal transactions of its owners.

• The accounting entity assumption is the principle that combines the transactions of the business with the personal transactions of its owners.

• The accounting entity assumption is the principle that requires all transactions to be recorded in a single currency.

• The accounting entity assumption is the principle that mandates the use of historical cost for asset valuation.

Anika is analyzing the financial statements of a business. What does the going concern assumption imply?

• The business will continue to operate indefinitely

• The business is expected to close within a year

• The business will be sold soon

• The business is facing financial difficulties

Abigail is preparing financial statements for her small business. What is the period assumption in accounting?

• The assumption that financial statements are prepared for a specific period of time.

• The assumption that all transactions are recorded in the period they occur.

• The assumption that the business will continue to operate indefinitely.

• The assumption that financial statements are prepared on a cash basis.

Ethan runs a small business and wants to understand the accrual basis of accounting. What does it mean?

• Revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.

• Revenues and expenses are recorded only when cash is received or paid.

• Only revenues are recorded when cash is received, expenses are recorded when incurred.

• Only expenses are recorded when cash is paid, revenues are recorded when earned.

Zoe is learning about accounting in her business class. She wants to know what the elements of accounting are. Can you help her?

• Assets, Liabilities, and Equity

• Revenue, Expenses, and Profit

• Cash, Inventory, and Receivables

• Budgeting, Forecasting, and Planning

Hannah runs a small bakery. What is revenue in accounting terms for her business?

• Revenue in accounting terms refers to the income generated from normal business operations and includes discounts and deductions for returned merchandise.

• Revenue in accounting terms refers to the total expenses incurred by a business during a financial period.

• Revenue in accounting terms refers to the net profit after all expenses have been deducted from total income.

• Revenue in accounting terms refers to the total assets owned by a business at the end of a financial year.

Benjamin is running a small business. What are expenses in accounting?

• Costs incurred in the process of earning revenue

• Assets owned by a company

• Revenues generated from sales

• Liabilities owed to creditors

Rohan is learning about finance. What are assets?

• Resources owned by a company

• Liabilities of a company

• Expenses incurred by a company

• Revenue generated by a company

Grace is learning about accounting in her business class. What are the qualitative characteristics of accounting information?

• Relevance and Faithful Representation

• Colorfulness and Size

• Speed and Efficiency

• Cost and Complexity