Accounting process and procedures

Question 1

4 assumptions

Answer 1

1. separate entity= the business is a separate entity from its owner (so business should be as well)
2. going concerns= assumes that the entity will continue to operate indefinitely (spread across time)
3. money measurement= assumes items aren’t accounted for unless you can quantify in monetary terms
4. time period = performance of business can be broken up into specific periods of time (month, quarter, year)

Question 2

5 principles

Answer 2

1. historical cost= requires business assets to be recorded at the actual price paid (cost, not market value)
2. matching= revenue + related expenses must be recorded in same accounting period (to avoid overstatement)
3. realization of income= revenue is recognized when they are earned (cash <–> goods/services)
4. full disclosure= financial statements have to provide enough info to assits users
5. dual aspect- ALE, all transactions must meet it

Question 3

4 conventions

Answer 3

materiality= individual events only recorded if it’s significant enough to justify the usefulness of the info
cost benefits= value of assets change overtime –> recorded at time with price acquired for it
conservatism= profit shouldn’t be taken into account unless actually realized
consistenty= same method of reporting, always

Question 4

accounting process in short (1.2)

Answer 4

observe, identify & measure
–> record, classify & summarize measurements
–> report economic events & interpret financial statements