accounting assumptions, concepts and principles (topic 2)

Question 1

Monetary principle

Answer 1

if things are to be recorded in accounting, the amount has to be converted into money.

Question 2

Accounting entity concept

Answer 2

business records must be kept separate from owner’s personal records. The accounting entity must be separate from the others.

Question 3

Accounting period concept

Answer 3

financial statements are made regularly to observe where the business is going, eg on 30 June every year.

Question 4

Going concern assumption

Answer 4

When preparing financial statements, it is assumed that the business will remain operational in foreseeable future.

Question 5

Historical cost principle

Answer 5

when something is bought in the business its cost (historical purchase price or acquisition cost) must be recorded.

Question 6

Full disclosure principle

Answer 6

everything must be disclosed (all financial records).