ABA Accounting Principles 2

Question 1

Under the matching principle, when should the cost of goods sold be recognized?

Accepted Answer

In the same period as the related revenue is earned

Answer

The matching principle requires expenses to be recognized in the same period as the revenues they help generate.

Question 2

Which accounting concept requires businesses to record transactions in the currency of the country in which they operate?

Accepted Answer

Monetary unit assumption

Answer

The monetary unit assumption states that only transactions expressible in a stable monetary unit are recorded.

Question 3

A company pays $24,000 for a two-year insurance policy. Under accrual accounting, how much expense is recognized in the first month?

Accepted Answer

$1,000

Answer

$24,000 divided by 24 months equals $1,000 of insurance expense per month.

Question 4

Which principle states that financial statements should disclose all information necessary for users to make informed decisions?

Accepted Answer

Full disclosure principle

Answer

The full disclosure principle requires that all relevant information be disclosed in the financial statements or accompanying notes.

Question 5

A company uses FIFO for inventory in one year and switches to LIFO the next. Which accounting principle is violated?

Accepted Answer

Consistency

Answer

The consistency principle requires companies to use the same accounting methods from period to period.

(ABA) Accredited Business Accountant Practice Test