Accounting Concepts and Principles

The economic entity assumption states that economic events

• A of different entities can be combined if all the entities are corporations.

• B must be reported to the Securities Commission.

• C of a sole proprietorship cannot be distinguished from the personal economic events of its owners.

• D can be identified with a particular unit of accountability.

The periodicity or time period assumption implies that

• A a business is separate and distinct from its owner or owners and from every other business.

• B the purchasing power of the unit of measurement used in accounting (the Ringgit Malaysia as is the case of Malaysia) does not change.

• C the economic activities of an enterprise can be divided into artificial time periods.

• D a business will continue to operate in the foreseeable future.

Which of the following explains the concept of consistency?

• A The accounting rule that requires assets and services plus any resulting liabilities to be taken into the accounting records at cost.

• B The accounting rule requiring a persistent application of a selected accounting method or procedure period after period.

• C The accounting rule requiring that whenever possible the amounts used in recording transactions be based on objective evidence rather than on subjective judgments.

• D The accounting rule that requires profit to be realised at the time when goods or services are passed to the customer.

For accounting purposes, the proprietor of an enterprise has always been considered to be separate and distinct from the business which he controls or owns. In accounting terms, this is referred to as

• A cost concept.

• B accrual concept

• C economic entity concept

• D going concern concept

Which of the following is true regarding the going concern concept?

• A Any foreseeable losses should be recorded in the current year, whereas profit will be recorded when it is realised.

• B A business will continue to operate in the foreseeable future.

• C Every transaction has two aspects of accounting.

• D Expenses incurred during the accounting period will be matched against income earned during the same time period.

Financial information is useful if

• A the information can make a difference in decision making.

• B the information has predictive or confirmatory value.

• C the information faithfully represents the substance of what it purports to represent.

• D All of the above.

Three of the following are related to faithful representation. Which one is not a characteristic of faithful representation?

• A Materiality

• B Completeness

• C Neutrality

• D Freedom from error

The usefulness of financial information is enhanced when

• A the information can be compared with similar information about other entities.

• B the information is difficult to be verified.

• C the information is unavailable in time.

• D the information is difficult to be understood by users.

For accounting purposes, a business enterprise has always been assumed to continue to exist in the foreseeable future. This assumption or concept is referred to as the

• A cost concept

• B accrual concept

• C economic entity concept

• D going concern concept

Which of the following is true about the accrual concept?

• A Any foreseeable losses should be recorded in the current year, whereas profit will be recorded when it is realised.

• B Revenue is recognised when it earned and expenses are recognised when they are incurred.

• C Every transaction has two aspects of accounting.

• D Expenses incurred during the accounting period will be matched against income earned during the same accounting method.