1 answer

Match the accounting principle on the left with the appropriate statement on the right. ____ Entity...

Question:

Match the accounting principle on the left with the appropriate statement on the right.

____ Entity assumption                 a. All relevant information must be presented in the financial statements.            

____ Materiality                             b. X Corp. uses FIFO every year to value its inventory.

____ Full disclosure                      c. Carefully make estimates to avoid overstating assets or net income.

____Consistency                          d. Sales are recorded when the product is provided, not when we get paid.

____ Historical cost                      e. The business plans to continue indefinitely.

____ Conservatism                       f. John’s personal assets do not appear on his business’ balance sheet.

____ Going concern                     g. A $2 error in an account with a balance of $80,000 does not matter.

____ Revenue recognition           h. Assets are not adjusted to their current value.


Answers

Ans :

Accounting Principle Correct Statement
Entity Assumption Statement
(this principle seperates transactions carried out by business from its owner)
Ans f : John's personal assets do not appear on his business balance
Materiality
(this principle states that the accounting standard can be ignored it its impact is immaterial i.e. small enought to not milead the users of financial statements
Ans g : A $2 error in an account with a balance of $80,000 does not matter.
Full Disclosure
(this principle requires to report all necessary information should be included in the entity's financial statement that would impact readers understanding of those statements)
Ans a : All relevant information must be presented in the financial statements.            
Consistency
(this principle states that once an accounting principle or method has been selected, that must be followed consistently throught the accounting periods)
Ans b : X Corp. uses FIFO every year to value its inventory.
Historical Cost
(this principle requires assets and liabilities should be recognized at their historical cost)
Ans h : Assets are not adjusted to their current value.
Conservatism
(this principle recognizing exps and liabilities as soon as possible when there is uncertainty about the income but recognize assets and revenue only when they are assured of being received)
Ans c : Carefully make estimates to avoid overstating assets or net income.
Going Concern
(this principle assumes that entity will remain in business for a foreseeable future)
Ans e : The business plans to continue indefinitely
Revenue Recognition
(this principle states that the revenue should be recognized when it is realized and earned and not when cash is received)
Ans d : Sales are recorded when the product is provided, not when we get paid.
.

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