ABA Accounting Principles 3

Question 1

The conservatism principle in accounting means that when in doubt, accountants should:

Accepted Answer

Choose the method that least overstates assets and income

Answer

Conservatism (or prudence) directs accountants to recognize potential losses immediately while deferring potential gains until realized.

Question 2

Which assumption underlies the practice of preparing monthly or quarterly financial statements?

Accepted Answer

Time period assumption

Answer

The time period assumption divides the business's continuous life into distinct periods for reporting purposes.

Question 3

A business records revenue of $5,000 for services performed even though the customer has not yet paid. This follows which principle?

Accepted Answer

Accrual basis / revenue recognition principle

Answer

Under the accrual basis revenue recognition principle, revenue is recorded when earned, regardless of when cash is received.

Question 4

A small business expenses a $15 stapler rather than depreciating it. This decision is justified by the:

Accepted Answer

Materiality principle

Answer

The materiality principle allows immaterial items to be expensed immediately since their effect on financial statements is insignificant.

Question 5

Which of the following best describes the going concern assumption?

Accepted Answer

A business will continue operating indefinitely into the future

Answer

The going concern assumption presumes a business will continue to operate long enough to fulfill its obligations and objectives.

(ABA) Accredited Business Accountant Practice Test