FREE Accounting Principles Question and Answers
Which rule/principle mandates that a corporation's land be reported on its balance sheet at the price the firm paid to purchase the land, even if the land might currently be sold for a far higher price?
Explanation:
According to the cost principle, an accountant must disclose assets and expenses at their actual costs rather than at higher quantities. Accounting professionals are not permitted to recognize gains from merely owning property. The corporation would have to sell the land in order to be able to record a gain on it.
Which principle or rule prevents the owner of a business from listing personal assets on the balance sheet of the business?
Explanation:
An economic entity is a unit distinct from all other entities that engage in financial activity, whether they be people or businesses. The term is derived from accounting because many national accounting standards classify companies according to the type of business or financial activity they engage in.
This rule/principle serves as the foundation for accrual accounting.
Explanation:
The matching principle is an accounting theory that requires businesses to disclose their outlays. The income statement shows a match between revenues and costs. the gain or for a certain amount of time (e.g., a year, quarter, or month).
Instead of registering a $250 digital camera as an asset and depreciating it over its useful life, a huge firm purchases it and expenditures it right away. Which concept or rule might make this activity acceptable?
Explanation:
$250 is regarded as a small sum because this is a big organization. Therefore, an investor or lender would not be misled by the higher expense of $200 per year in the first year and the $50 difference in the following four years if the company depreciates the camera at $50 per year for five years or incurs $250 in the year it is purchased.
Which rule or concept permits a business to ignore the evolution of the dollar's purchasing power over time?
Explanation:
The money measurement idea is another name for the monetary unit assumption. Since money is typically the currency unit used in a nation, all transactions are measured in monetary terms and documented in the books of accounts in terms of money. For instance, all accounting records are kept in US dollars and are stored there.
Which principle or guideline mandates that the financial statements of the corporation include footnotes conveying data that is crucial to their intended audience?
Explanation:
The full disclosure principle of accounting discusses the information disclosure requirements for consumers of an entity's financial statements in relation to the materiality notion of accounting. This principle states that an entity's management is expected to disclose in its financial statements all pertinent and suitable information (including financial and non-financial information) that could have an impact on the users' decision-making behavior.
A business demanded a client pay a $200,000 deposit for work that will start the following year towards the end of the current fiscal year. The corporation listed the $200,000 as a liability on its balance sheet at the end of the current year. Which accounting rule or guideline barred the business from including the $200,000 in its current-year income statement?
Explanation:
A generally accepted accounting standard (GAAP) called revenue recognition specifies the particular circumstances under which revenue is recognized and how to account for it. When a significant event occurs, revenue is typically realized, and the corporation can simply quantify the financial amount.