Accounting Online Program Accounting Principles 3

Question 1

When a company anticipates a loss but not a gain under uncertainty, it is applying:

Accepted Answer

Conservatism principle

Answer

Conservatism (prudence) directs accountants to recognize potential losses immediately but wait until gains are certain before recording them.

Question 2

Which qualitative characteristic makes financial information useful for comparing two different companies?

Accepted Answer

Comparability

Answer

Comparability allows users to identify similarities and differences between companies by applying consistent accounting standards.

Question 3

The economic entity assumption states that:

Accepted Answer

A business's finances must be kept separate from its owner's personal finances

Answer

The economic entity assumption requires that a business's transactions be recorded separately from those of its owners or other entities.

Question 4

Which of the following best describes the monetary unit assumption?

Accepted Answer

Only transactions that can be expressed in money are recorded

Answer

The monetary unit assumption holds that only economically significant events expressible in money are recorded in the accounts.

Question 5

Under the time period assumption, a company prepares financial statements:

Accepted Answer

For artificial but equal time intervals

Answer

The time period assumption divides an entity's continuous life into defined intervals (months, quarters, years) for reporting purposes.

Accounting Online Program Practice Test