Understanding Accounting Conventions

What is the main idea of accrual accounting?

• Recording transactions only when cash is received or paid

• Recording transactions when they occur, regardless of cash flow

• Recording transactions at the end of the year

• Recording transactions only when a profit is made

In cash basis accounting, when is revenue recorded?

• When the service is performed

• When the cash is received

• At the end of the month

• When the invoice is sent

What does the going concern principle assume about a business?

• It will close down soon

• It will continue to operate indefinitely

• It will be sold next year

• It will only operate for a short period

Why is the consistency principle important in accounting?

• It allows for changing accounting methods frequently

• It ensures that the same accounting methods are used over time

• It requires using different methods for different transactions

• It encourages using the most complex accounting methods

What does the prudence concept advise accountants to do?

• Overestimate profits

• Underestimate expenses

• Be cautious and not overstate profits or assets

• Ignore potential losses

Which principle matches expenses with the revenues they help to generate?

• Consistency Principle

• Prudence Concept

• Matching Principle

• Going Concern Principle

In accrual accounting, when are expenses recorded?

• When cash is paid

• When the expense is incurred

• At the end of the year

• When the invoice is received

Which accounting method is simpler for small businesses to use?

• Accrual Accounting

• Cash Basis Accounting

• Going Concern Principle

• Matching Principle

What is the main disadvantage of cash basis accounting?

• It is too complex

• It does not show the true financial position

• It requires too much paperwork

• It is not allowed by law

Why is the going concern principle important for financial statements?

• It allows for immediate liquidation of assets

• It assumes the business will continue, affecting asset valuation

• It requires all debts to be paid immediately

• It mandates frequent changes in accounting policies