Accounting Assumptions and Relationships

What does the accounting period concept state about the life of a business?

• It is divided into time periods of unequal length.

• It is divided into time periods of equal length, usually one year.

• It is not divided into any time periods.

• It is divided into time periods of varying lengths based on business needs.

In Australia, what is the typical financial year period for businesses?

• 1 January to 31 December

• 1 April to 31 March

• 1 July to 30 June

• 1 October to 30 September

How does the going concern principle relate to long-term assets in accounting?

• Long-term assets are written off as costs in the year of purchase.

• Long-term assets are reported in the Statement of Financial Position.

• Long-term assets are ignored in financial statements.

• Long-term assets are only considered if the business is closing.

What problem does the accounting period convention address?

• The need to calculate profit or loss without waiting for the business to cease.

• The need to ignore long-term assets.

• The need to report only annual profits.

• The need to avoid reporting any financial information.

Which equation is used as the basis of the narrative form of the Statement of Financial Position?

Which equation is used as the basis of the account form of the Statement of Financial Position?

How is a profit from the Statement of Profit or Loss reflected in the Statement of Financial Position?

• As a decrease in owner's equity

• As an increase in owner's equity

• As a separate liability

• As a reduction in assets

How is a loss from the Statement of Profit or Loss reflected in the Statement of Financial Position?

• As an increase in owner's equity

• As a decrease in owner's equity

• As an increase in liabilities

• As a separate asset

What assumption does the going concern principle make about a business?

• The business will cease operations within a year.

• The business will continue indefinitely.

• The business will only operate for a fixed period.

• The business will operate only until its assets are depleted.

Why are accounting periods typically aligned with the financial tax year of a country?

• To avoid paying taxes

• To ensure consistency in financial reporting and tax obligations

• To confuse stakeholders

• To maximise profits