Assumptions, Accounting Prin

Question 0

What is the unit of measurement assumption?

Answer 0

Assets, liabilities, equities, revenues, expenses, gains, losses, & cash flows are measured in terms of the monetary unit of the country in which the business operates

Question 1

What does the historical cost accounting principle state?

Answer 1

Assets & liabs are recorded @ historical cost (cash equivalent @ origination)

This value is the market value of the item on the date of acquisition.

Question 2

What is the time period assumption?

Answer 2

The indefinite life of a business is broken into smaller time frames, typically a year, for evaluation purposes and reporting purposes.

Question 3

What is the entity assumption?

Answer 3

We assume there is a separate accounting entity for each business organization.

Question 4

When does realization occur in the accounting period?

Answer 4

1) goods/services have been provided
2) collectibility of cash is assured
3) expenses of providing goods and services can be determined

Question 5

What is the full disclosure principle?

Answer 5

F/S should present all info needed by an informed reader to make an economic decision.

AKA adequate disclosure principle

Question 6

Matching principle

Answer 6

Recognize expenses only when expenditures help to produce revenues

Question 7

Concept of capital maintenance

Answer 7

Capital is used to be maintained when the firm has positive earnings for the year, assuming no changes in price levels.

Question 8

Going concern principle

Answer 8

In the absence of info to the contrary, a business is assumed to have an indefinite life - it will continue to be a going concern.