Fundamentals of Accounting Concepts

Which of the following best describes the Entity Concept in accounting?

• It assumes that the business will continue to operate indefinitely.

• It treats the business as separate from its owners.

• It records only those transactions that can be measured in monetary terms.

• It requires expenses to be matched with revenues.

The Money Measurement Principle in accounting implies that:

• Only transactions that can be expressed in monetary terms are recorded.

• All assets are recorded at their current market value.

• The business is separate from its owners.

• Expenses should be matched with revenues.

Which of the following is true about the Going Concern Assumption?

• It assumes that the business will be liquidated soon.

• It assumes that the business will continue to operate for the foreseeable future.

• It requires that all assets be recorded at their liquidation value.

• It requires that all liabilities be settled immediately.

The Accruals Basis of Accounting requires:

• Revenues and expenses to be recorded when cash is received or paid.

• Revenues and expenses to be recorded when they are incurred, regardless of cash flow.

• Only cash transactions to be recorded.

• All transactions to be recorded at historical cost.

The Matching Principle in accounting states that:

• Expenses should be recorded in the period they are paid.

• Expenses should be matched with the revenues they help to generate.

• All transactions should be recorded at their market value.

• Only cash transactions should be recorded.

Which of the following best describes the Conservatism Principle?

• It requires that expenses be recorded only when paid.

• It requires that revenues be recorded only when they are certain.

• It requires that potential expenses and liabilities be recognized as soon as possible.

• It requires that all assets be recorded at their market value.

According to the Entity Concept, which of the following is true?

• The business and its owner are considered the same entity.

• The business is treated as a separate legal entity from its owner.

• The business's financial statements include the owner's personal transactions.

• The business's financial statements exclude all liabilities.

The Money Measurement Principle would exclude which of the following from financial statements?

• Cash transactions

• Employee skills and morale

• Inventory purchases

• Sales revenue

Under the Going Concern Assumption, which of the following is assumed?

• The business will cease operations within a year.

• The business will continue to operate indefinitely.

• The business will be sold in the near future.

• The business will not generate any profit.

Which of the following is an example of the Accruals Basis of Accounting?

• Recording revenue when cash is received.

• Recording expenses when they are paid.

• Recording revenue when it is earned, regardless of cash receipt.

• Recording expenses only when cash is available.