Required: Match the following descriptions with the four underlying assumptions of generally accepted accounting principles. Descriptions a A common denominator is needed to measure all business activities. b. Economic events can be identified with a particular economic body. In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely The economic life of a company can be divided into artificial time intervals for financial reporting. C. d. Assumptions

Required: Match the following descriptions with the four underlying assumptions of generally accepted accounting principles. Descriptions a A common denominator is needed to measure all business activities. b. Economic events can be identified with a particular economic body. In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely The economic life of a company can be divided into artificial time intervals for financial reporting. C. d. Assumptions

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The life of a business is divided into specific time periods, usually a year, to measure results of operations for each such time period and to portray financial conditions at the end of each period. (a) This practice is based on the accounting assumption that the life of the business consists of a series of time periods and that it is possible to measure accurately the results of operations for each period. Comment on the validity and necessity of this assumption. (b) What has been the effect of this practice on accounting? What is its relation to the accrual basis of accounting? What influence has it had on accounting entries and practices?
The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firm’s gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders. The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm’s revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the company’s financial performance and condition. Consider the following scenario: Cute Camel Woodcraft Company’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year. 1. Cute Camel is able to achieve this level of increased sales, but its…
Match the following situations or statements with the correct assumption or principle. Financial Statements must be prepared at defined equal time intervals A company is assumed to continue its activity in order to fulfill objectives and commitments All important financial information must be reported or revealed. The value of an asset will be kept unchanged regardless of changes in the assets fair value. Expenses are recorded in the same period when they help generate revenues. Choose... Choose... Going concern assumption Periodicity assumption Expense recognition principle Historical cost principle Full disclosure principle Choose... Choose... =
A business will construct its financial statements in a particular order because they are interrelated. This means that items formulated in an earlier statement feed into the subsequent statements, and changes to items on one financial statement can have compounding effects on the overall financial position of a company. 1. Which of the following is one reason the statement of owner's equity is prepared after the income statement? 2. Which of the following is one reason the statement of owner's equity is prepared before the balance sheet?
The four major financial reports that summarize the effects of economic events (like the results of operations) on a business for a specific time period or accounting period are called what? Group of answer choices tax returns managerial statements financial statements economic statements
Using the following categories, discuss the differences that exist between accounting for these items in a personal context versus for a business. Specifically provide examples of the difference in account names or terms used to describe the eguivalent item when related to accounting for a business. 1. Assets & LIabilities 2. Net Worth 3. Surplus(deficit)
Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The Conceptual Framework examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information. Instructions a. Describe briefly the following characteristics of useful accounting information. 1. Relevance. 2. Faithful representation. 3. Understandability. 4. Comparability (consistency). 5. Neutrality. b. b. For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other. 1. Relevance and faithful representation. 2. Relevance and consistency. 3. Comparability and consistency.…
The following describes Financial Statements, except; * It is an art of recording, classifying, summarizing and interpreting of accounting transaction. A collection of summary-level reports about an organization's financial results which consists of four major financial reports. Financial information which is communicated by an enterprise to external parties Historical in nature but it all depends on management's judgement The objective of financial statement is to * know the financial status of the organization, whether the business is making profit or running at loss, and what corrective action to be taken. form a Private Finance Initiative (PFI) establishment. use accounting techniques such as marginal costing budgetary controls and standard costing. finance hire purchase.
Options are: General Accounting principle Revenue recongnition principle Full disclosure principle Buisnmess entity assumption Going concern assumption
The business entity assumption is important because O a. it requires that the company record all of its economic transactions in accordance with GAAP. O b. it limits economic data in the accounting system to data directly related to the activities of the business. O c. it limits the amount that a company can record for its transactions in the accounting records. O d. it requires that all transactions be recorded in the period in which they occur.