Allocates expenses to revenues in the proper period. A company charges its sales commission costs to expense. historical cost principle. Indicates that fair value changes subsequent to purchase are not recorded in the accounts.
What is the accounting assumptions that justify the use of consolidated statements?
The use of consolidated statements is justified. Reporting must be done at defined time intervals. An allowance for doubtful accounts is established. Goodwill is recorded only at time of purchase.
What is the rationale for accrual accounting?
The general concept of accrual accounting is that economic events are recognized by matching revenues to expenses (the matching principle) at the time when the transaction occurs rather than when payment is made or received.
Which assumption implies that the business records should be kept separate and distinct from those of the owners?
Business entity assumption, sometimes referred to as separate entity assumption or the economic entity concept, is an accounting principal that states that the financial records of any business must be kept separate from those of its owners or any other business.
What indicates that personal and business record keeping should be kept separate?
Identify the accounting assumption, principle or constraint
| Question | Answer |
|---|---|
| Indicates that personal and business record-keeping should be separately maintained | Economic entity assumption |
| Ensures that all relevant information is reported | Full Disclosure Principle |
What indicates that personal and business record keeping should be separately maintained?
Answer: 1. The Economic Entity assumption indicates that personal and business record keeping should be separately…
What’s the difference between accrual and cash basis accounting?
Accrual accounting means revenue and expenses are recognized and recorded when they occur, while cash basis accounting means these line items aren’t documented until cash exchanges hands.
What is a revenue point?
Definition. The term revenue recognition at the point of sale refers to the process of recording revenue from manufacturing and selling activities at the time of sale. The revenue recognition principle states a company can record revenue when two conditions are met. They must be realized or realizable, and earned.
What are expenses paid in cash before they are used or consumed?
1. Prepaid expenses: Expenses paid in cash and recorded as assets before they are used or consumed. 2. Unearned revenues: Cash received before service are performed.
What requires that accounting standards be followed for all items of significant size?
Identify the accounting assumption, principle or constraint
| Question | Answer |
|---|---|
| Assumes that the dollar is the “measuring stick” used to report on financial performance. | Monetary unit assumption |
| Requires that accounting standards be followed for all items of significant size. | Materiality |
What requires recognition of expenses in the same period as revenues?
In accrual accounting, the matching principle instructs that an expense should be reported in the same period in which the corresponding revenue is earned, and is associated with accrual accounting and the revenue recognition principle states that revenues should be recorded during the period in which they are earned.
What is the accounting assumption that justify the use of consolidated statements?
Is the rationale for why plant assets are not reported?
The going concern assumption implies that the company will be continuing in business. Since it is assumed that the company is not liquidating, the liquidation value of the plant assets is not relevant. The revenue recognition principle prohibits a company from showing a gain from merely holding a plant asset.
What is monetary unit assumption?
The monetary unit principle is the assumption that money itself is treated as a unit of measurement, and that all transactions or economic events recorded in the accounts of a business can be expressed and measured in monetary terms by a currency.
How are fair value changes recognized in accounting?
Fair value changes are not recognized in the accounting records. historical cost principle Financial information is presented so that investors will not be misled. full disclosure principle Intangible assets are capitalized and amortized over periods benefited.
How are revenue recognition and accrual accounting related?
Full Disclosure Principle (h) Revenue is recorded at point of sale. Revenue Recognition Principle (i) All important aspects of bond indentures are presented in financial statements. Full Disclosure Principle (j) Rationale for accrual accounting. Expense Recognition, Revenue Recognition (k) The use of consolidated statements is justified.
When is the fair value of goodwill recorded?
Measurement Principle (fair value) (n) Goodwill is recorded only at time of purchase. Measurement Principle (historical cost) (o) A company charges its sales commission costs to expense.
Why do agricultural companies use the fair value principle?
Agricultural companies use fair value for purposes of valuing crops. industry practices & fair value principle Each enterprise is kept as a unit distinct from its owner or owners. economic entity assumption All significant post balance sheet events are reported.
