Accounting Quiz

If a business is not being sold or closed, the amounts reported in the accounts for assets used in the business operations are based on the cost of the assets. This practice is justified by

It is the exercise of care and caution in dealing with uncertainties in measurement so as not to overstate assets and income and not understate liabilities and expenses.

Historically, managers, investors and accountants have generally preferred that possible errors in measurement be in the direction of understatement of net income and net assets.

Which of the following is incorrect?

• In accordance with the unit of measure assumption, accountants normally revise the amounts to reflect the changing purchasing power of money due to inflation or deflation.

• Expenses are matched with revenues, not the reverse.

• In accordance with the going concern assumption, the life of a business is presumed to be indefinite.

• The accrual method, which builds directly on the revenue and matching principles, ignores the timing of cash receipts or payments when determining when to recognize revenue or expenses.

Financial reporting is concerned only with information that is significant enough to affect evaluation or decision.

The effects of transactions and other events are recognized when they occur and not as cash or its equivalent is received or paid, and they are recorded and reported in the financial statements of the periods to which they relate.

It is the capacity of information to make a difference in decision by helping users evaluate past, present or future events, or confirming, or correcting, their past evaluations.

The financial accounting information is directed toward the common needs of users and is independent of presumptions about particular needs and desires of specific users.

It is the ability to bring together for the purpose of noting similarities and dissimilarities.

Financial reports communicated after an accounting decision has been made defeat the primary purpose of which characteristic?