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Accounting Principle

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12 views

Accounting Principle

Uploaded by

Jemal Seid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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GAGE UNIVERSITY COLLEGE

TVET PROGRAM
DEPARTMENT OF ACCOUNTING AND FINANCE
Part one Indicate whether the following are True or False
1. Accounting Principle is general law or rule followed in the preparation of financial
statements
2. According to money measurement concept, the efficiency of the top management of the
business must be clearly recorded in the books of accounts
3. In accountancy, all business transactions are recorded as having dual aspect
4. Cash basis considers the revenue as realized when the goods are produced
5. According to periodic matching of cost and revenue concept, a business man is not only
to measure revenues in a particular accounting period but also has to calculate expenses
which can be assigned in earning such revenues
Part two Choose the best answer
1. The personal assets of the owner of a company will not appear on the company's balance
sheet because of which principle/guideline?
A. Historical Cost B. Business / Economic Entity C. Monetary Unit
2. Which principle requires the company's financial statements to have footnotes containing
information that is important to users of the financial statements?
A. Prudence / Conservatism B. Business / Economic Entity C. Full Disclosure
3. Which principle is associated with the assumption that the company will continue on long enough
to carry out its objectives and commitments?
A. Business / Economic Entity B. Going Concern C. Time Period
4. Accountants might recognize losses but not gains in certain situations. For example, the company
might write-down the cost of inventory, but will not write-up the cost of inventory. Which
principle is associated with this action?
A. Prudence / Conservatism B. Materiality C. Monetary Unit
5. A very large corporation's financial statements have the rand amounts rounded to the nearest R1
000. Which accounting principle justifies not reporting the amounts to the cent?
A. Full Disclosure B. Materiality C. Monetary Unit
6. When the accountant has to choose between two acceptable alternatives, the accountant should
select the alternative that will report less profit, less asset amount, or a greater liability amount.
This is based upon which principle?
A. Prudence / Conservatism B. Historical Cost C. Materiality
7. A large company purchases a R250 digital camera and expenses it immediately instead of
recording it as an asset and depreciating it over its useful life. This practice may be acceptable
because of which principle?
A. Historical Cost B. Matching C. Materiality
8. A company sold merchandise of R8 000 to a customer in December. The company's sales terms
require the customer to pay the company in 30 days. The company's income statement reported the
sale in December. This is proper under which accounting principle?

1
A. Full Disclosure B. Monetary Unit C. Revenue Recognition / Realisation
9. Accrual accounting is based on this principle.
A. Historical Cost B. Full Disclosure C. Matching
10. An asset with a cost of R120 000 is depreciated over its useful life of 10 years rather than
expensing the entire amount when it is purchased. This complies with which principle?
A. Historical Cost B. Full Disclosure C. Matching
Part three Fill in the missing word and unscramble the answers:
Word Scrambled Unscrambled
Clue Answer Answer
1 General rules and guidelines CREPISNPIL
2 The concept of _________________ IYARMILETAT
allows for the violation of an
accounting principle when the
amounts are insignificant
3 The __________ entity assumption IOCENOCM
results in business transactions being
kept separate from a sole proprietor's
personal transactions.
4 In cases of uncertainty, less profit is RVETMCSOINSA
reported under this concept
5 Full __________ is achieved through ODRCSILUSE
the notes to the financial statements
Part Four Give the Accounting concept defined/explained below.
1. The same accounting concepts are applied in the same way in each accounting period
2. A business’s financial performance is recorded and reported separately from the owner’s
personal financial statement
3. Business is expected to remain in operations indefinitely
4. Profits should not be overstated and loss must not be understated
5. Due to the high inflation rate, the replacement cost of the existing raw material has gone
up by 30%. The company ignores this inflationary factor and records it at the original
value

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