1.3 - Claims and GAAPs

Question 1

CLAIMS AGAINST THE ASSETS

Answer 1

Liabilities = CREDITORS CLAIM TO THE ASSETS

Owner’s Equity = OWNER’S CLAIM TO THE ASSETS

Question 2

If a business is closed down, to whom do the assets belong?

Answer 2

Claims of the creditor’s are always settled first, followed by claims of the owner

The owner always gets what is left over, after the claims of the creditors are paid

Question 3

Generally Accepted Accounting Principles

Answer 3

LAWS or RULES that all accountants MUST follow

Question 4

Who made the GAAPs

Answer 4

The rule makers are the CICA (Canadian Institute of Chartered Accountants)

Question 5

The Business Entity Concept (GAAPS)

Answer 5

The Business Entity Concept provides that the accounting for a business organization must be kept separate from the personal affairs of its owner, or from any other business or organization.

Question 6

The Continuing Concern Concept (GAAPS)

Answer 6

The Continuing Concern Concept assumes that a business will continue to operate unless it is known that it will not.

Question 7

What else is the Continuing Concern Concept known as?

Answer 7

This is also known as the going concern concept.

Question 8

The Principle of Conservatism (GAAPS)

Answer 8

The principle of conservatism provides that accounting for a business should be fair and reasonable.

need to always ensure that assets and profits are never overstated or understated.

Question 9

The Objectivity Principle (GAAPS)

Answer 9

The objectivity principle in accounting states that the financial statements a company produces must be based on solid evidence.