Accounting Principles

What is the basic accounting equation?

• Assets = Liabilities - Equity

• Liabilities = Assets + Equity

• Assets = Liabilities + Equity

• Assets - Liabilities = Equity

Explain the accrual basis of accounting.

• The accrual basis of accounting recognizes revenue only when cash is received and expenses only when cash is paid.

• The accrual basis of accounting recognizes revenue when cash is received and expenses when cash is paid.

• The accrual basis of accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged.

• The accrual basis of accounting recognizes revenue when it is earned and expenses when they are paid.

What is the difference between cash basis and accrual basis accounting?

• Cash basis records transactions when they occur, while accrual basis records transactions when cash is exchanged.

• Cash basis is used for large corporations, while accrual basis is used for small businesses.

• Cash basis records transactions when cash is exchanged, while accrual basis records transactions when they occur.

• Cash basis accounting is more accurate than accrual basis accounting.

Define the principle of conservatism in accounting.

• The principle of conservatism in accounting is to choose the option that is most likely to overstate assets and income.

• The principle of conservatism in accounting is to be neutral and not consider the impact on assets and income.

• The principle of conservatism in accounting is to choose the option that is least likely to overstate assets and income.

• The principle of conservatism in accounting is to always overstate assets and income.

What is the matching principle in accounting?

• Assets should be matched with liabilities in the same accounting period.

• Income should be matched with expenses in the same accounting period.

• Expenses should be matched with the revenues they generate in the same accounting period.

• The matching principle is not relevant in accounting.

Explain the concept of materiality in accounting.

• Materiality in accounting refers to the weight of physical assets in a company's financial statements.

• Materiality is the concept that all financial transactions must be recorded regardless of their significance.

• Materiality only applies to large corporations and not small businesses.

• Materiality in accounting is the concept that items significant enough to influence the decision-making of financial statement users should be disclosed or accounted for.

What is the historical cost principle?

• Assets are recorded at their highest value since acquisition

• Assets are recorded at their current market value

• Assets are recorded at their original cost when acquired.

• Assets are recorded at their depreciated value

Define the principle of consistency in accounting.

• Consistency in accounting refers to applying different standards to different financial statements.

• Consistency in accounting refers to the practice of applying the same accounting policies and methods from one period to another.

• Consistency in accounting means using different accounting policies each year.

• Consistency in accounting involves changing accounting methods frequently.

What is the revenue recognition principle?

• Revenue should be recognized when it is earned and collected.

• Revenue should be recognized when it is earned and spent.

• Revenue should be recognized when it is earned and realized or realizable.

• Revenue should be recognized when it is earned and invoiced.

Explain the concept of going concern in accounting.

• Going concern means a business will cease operations soon.

• Going concern is the assumption that a business will never generate profits.

• Going concern refers to the idea that a business will only operate for a short period.

• The concept of going concern in accounting is the assumption that a business will continue to operate indefinitely.