Basic Accounting Principles and Concepts for Small Businesses

The video tutorial introduces basic accounting concepts, focusing on the importance of record-keeping and the role of accounting in business management. It highlights the significance of Generally Accepted Accounting Principles (GAAP) and explains key concepts like the entity concept, which separates personal and business finances, and the going concern concept, which assumes business continuity. Through examples from Peter's business, the tutorial illustrates how these principles are applied in practice.

Why is it important for businesses to follow Generally Accepted Accounting Principles (GAAP)?

• To allow businesses to operate without any financial regulations

• To maintain uniformity and comparability in financial statements

• To ensure that only the owner understands the financial records

• To ensure personal expenses are included in business records

What does the entity concept in accounting imply?

• Business and personal assets are the same

• Business records are not necessary

• Business is a separate entity from its owner

• Business and personal finances are combined

According to the entity concept, how should Peter handle his personal expenses?

• Include them in the business accounts

• Record them as business assets

• Keep them separate from business finances

• Ignore them in financial records

What is the main assumption of the going concern concept?

• A business will close within a year

• A business will operate indefinitely

• A business will only last for a specific project

• A business will not require any loans

How should Peter account for a $2,000 weighing machine that benefits his business for 10 years?

• Record the entire $2,000 as an expense in the first year

• Record $200 as an expense each year for 10 years

• Record $2,000 as a personal expense

• Ignore the cost in financial records

If Peter spends $6,000 on advertising that benefits his business for six years, how should it be recorded?

• Not recorded at all

• As a $6,000 expense in the first year

• As a $1,000 expense each year for six years

• As a personal expense

Why might a bank be hesitant to provide a long-term loan to a business?

• If the business has a good reputation

• If the business is expected to close soon

• If the business is a going concern

• If the business has future payment provisions