Case #4: Short answer questions - Accounting Concepts 1. (1) Describe the primary difference between cash basis and accrual basis accounting. (2) Identify the two primary principles/assumptions/constraints that allow for accrual basis accounting. 2. A common misconception of non-accountants is that accounting depreciation measures the deterioration in the value of an asset. (1) Identify the principle/assumption/constraint that necessitates the application of depreciation, (2) define it as completely as possible and (3) apply it by describing how the process of depreciation fits the definition. 3. A fellow staff auditor comments, "We don't need to make any record of that transaction because it does not amount to more than 5% of net assets. We can totally ignore it!" There are two misconceptions in this statement. (1) What principle/assumption/constraint is your colleague referring to? (2) Provide a short description of how he or she has misconstrued the concept. 4. Property, plant and equipment include all assets that a company uses in its long-term operations to produce profits on a yearly basis. These assets are recorded at historical cost on the balance sheet. A friend dismisses historical cost as meaningless and irrelevant to shareholders, suggesting that the asset's current price would be more meaningful if the company were forced to liquidate due to bankruptcy. Provide an accounting principle and an accounting assumption to counter your friend's argument.
Case #4: Short answer questions - Accounting Concepts 1. (1) Describe the primary difference between cash basis and accrual basis accounting. (2) Identify the two primary principles/assumptions/constraints that allow for accrual basis accounting. 2. A common misconception of non-accountants is that accounting depreciation measures the deterioration in the value of an asset. (1) Identify the principle/assumption/constraint that necessitates the application of depreciation, (2) define it as completely as possible and (3) apply it by describing how the process of depreciation fits the definition. 3. A fellow staff auditor comments, "We don't need to make any record of that transaction because it does not amount to more than 5% of net assets. We can totally ignore it!" There are two misconceptions in this statement. (1) What principle/assumption/constraint is your colleague referring to? (2) Provide a short description of how he or she has misconstrued the concept. 4. Property, plant and equipment include all assets that a company uses in its long-term operations to produce profits on a yearly basis. These assets are recorded at historical cost on the balance sheet. A friend dismisses historical cost as meaningless and irrelevant to shareholders, suggesting that the asset's current price would be more meaningful if the company were forced to liquidate due to bankruptcy. Provide an accounting principle and an accounting assumption to counter your friend's argument.
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle
Section: Chapter Questions
Problem 7CYBK
Related questions
Question
![Case #4: Short answer questions - Accounting Concepts
1. (1) Describe the primary difference between cash basis and accrual basis accounting. (2) Identify the
two primary principles/assumptions/constraints that allow for accrual basis accounting.
2. A common misconception of non-accountants is that accounting depreciation measures the
deterioration in the value of an asset. (1) Identify the principle/assumption/constraint that necessitates
the application of depreciation, (2) define it as completely as possible and (3) apply it by describing
how the process of depreciation fits the definition.
3. A fellow staff auditor comments, "We don't need to make any record of that transaction because it
does not amount to more than 5% of net assets. We can totally ignore it!" There are two
misconceptions in this statement. (1) What principle/assumption/constraint is your colleague referring
to? (2) Provide a short description of how he or she has misconstrued the concept.
4. Property, plant and equipment include all assets that a company uses in its long-term operations to
produce profits on a yearly basis. These assets are recorded at historical cost on the balance sheet. A
friend dismisses historical cost as meaningless and irrelevant to shareholders, suggesting that the
asset's current price would be more meaningful if the company were forced to liquidate due to
bankruptcy. Provide an accounting principle and an accounting assumption to counter your friend's
argument.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F510ac3bc-14e7-425d-a392-43782801d280%2F74e4787e-141f-4f3f-9237-1bc79f0c8399%2Fsar3eh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Case #4: Short answer questions - Accounting Concepts
1. (1) Describe the primary difference between cash basis and accrual basis accounting. (2) Identify the
two primary principles/assumptions/constraints that allow for accrual basis accounting.
2. A common misconception of non-accountants is that accounting depreciation measures the
deterioration in the value of an asset. (1) Identify the principle/assumption/constraint that necessitates
the application of depreciation, (2) define it as completely as possible and (3) apply it by describing
how the process of depreciation fits the definition.
3. A fellow staff auditor comments, "We don't need to make any record of that transaction because it
does not amount to more than 5% of net assets. We can totally ignore it!" There are two
misconceptions in this statement. (1) What principle/assumption/constraint is your colleague referring
to? (2) Provide a short description of how he or she has misconstrued the concept.
4. Property, plant and equipment include all assets that a company uses in its long-term operations to
produce profits on a yearly basis. These assets are recorded at historical cost on the balance sheet. A
friend dismisses historical cost as meaningless and irrelevant to shareholders, suggesting that the
asset's current price would be more meaningful if the company were forced to liquidate due to
bankruptcy. Provide an accounting principle and an accounting assumption to counter your friend's
argument.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![Auditing: A Risk Based-Approach (MindTap Course L…](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)
Auditing: A Risk Based-Approach (MindTap Course L…
Accounting
ISBN:
9781337619455
Author:
Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:
Cengage Learning
![Financial Reporting, Financial Statement Analysis…](https://www.bartleby.com/isbn_cover_images/9781285190907/9781285190907_smallCoverImage.gif)
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
![Auditing: A Risk Based-Approach (MindTap Course L…](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)
Auditing: A Risk Based-Approach (MindTap Course L…
Accounting
ISBN:
9781337619455
Author:
Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:
Cengage Learning
![Financial Reporting, Financial Statement Analysis…](https://www.bartleby.com/isbn_cover_images/9781285190907/9781285190907_smallCoverImage.gif)
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
![Intermediate Accounting: Reporting And Analysis](https://www.bartleby.com/isbn_cover_images/9781337788281/9781337788281_smallCoverImage.jpg)
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning