WorksheetsAccounting Theories Level 2
Total questions: 12
Worksheet time: 6mins
What does the Accrual basis of accounting state?
Only cash transactions should be recorded.
Business activities that have occurred should be recorded in the relevant accounting period.
Both A and B
Which principle states that once an accounting method is chosen, it should be applied consistently?
Consistency
Matching
Revenue Recognition
What is assumed about a business in the Going Concern theory?
It has a definite economic life.
It may close down at any time.
It has an indefinite economic life unless there is credible evidence of closure.
What should be reported in the financial statements according to the Materiality principle?
All information, regardless of relevance.
Only relevant information that makes a difference to the decision-making process.
No information should be reported.
What does the Accounting Entity theory state?
Business and owner are treated as two separate entities.
All transactions are recorded from the point of view of the business.
Only business transactions affecting the business are recorded in the business books.
What does the Objectivity principle state?
Accounting information must be supported by reliable and verifiable evidence.
Financial statements should be free from opinions and biases.
Both A and B
According to which principle, expenses incurred must be matched against income earned in the same period?
Matching
Prudence
Materiality
How is the life of a business divided in the Accounting Period theory?
Into irregular time intervals.
Into regular time intervals.
It is not divided.
According to the Prudence principle, what should be the accounting treatment chosen?
The one that overstates assets and profits.
The one that understates liabilities and losses.
The one that least overstates assets and profits and least understates liabilities and losses.
What principle states that transactions should be recorded at their original cost?
Historical Cost
Objectivity
Consistency
According to which theory, only business transactions that can be measured in monetary terms are recorded?
Accounting Entity
Monetary
Going Concern
When is revenue recorded as earned according to the Revenue Recognition principle?
When goods have been sold and delivered.
When services have been provided.
Both A and B
