accounting concepts - principles of accounting

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Accounting concepts

1. Cost concept: Assets are normally shown at cost price

2. Money measurement concept: The concept that accounting is concerned only with facts

measurable in money, and for which measurement can obtain general agreement.

3. The business entity concept: Assumption that only transactions that effect firm and not the owners

private transactions will be recorded.

4. The dual aspect concept: The concept that each transaction is recorded by taking both aspects,

debit and credit.

5. Accrual concept: The concept that profit is the difference between revenue and expenditure.

6. Going concern concept: The assumption that the business will continue to operate for theforeseeable future or continue for a long time

7. Materiality concept: Recording something is a special way only if the amount is not a small one.

8. Subjectivity: Using a method that other people may not agree to derived from ones own personal

preferences.

9. Prudence: Ensuring that profit is not shown as being too high or that assets are shown at too high

value.

10. Consistency: Each firm should follow constant method of treatment for each item. If the method is

changing every year, then the profit calculated will be misleading one.

11. Time interval concept:Final accounts are prepared at regular intervals.

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Accounting Concepts

MCQ

1. Fixed assets are generally shown at cost price. Which of the accounting concept is followed?A. Money measurement concept B. Historical cost concept

C. Going concern concept D. The business entity concept

2. The motor car purchased by the owner of a business for his private use, did not record in the books

of the business. Which one of the following is not followed?

A. Business entity concept B. Money measurement concept

C. Historical cost concept D. Going concern concept

3. A firm bought goods $ 300 by cash. The accountant recorded the entry in the purchase account, but

did not record in the cash book. Which accounting concept is violated?

A. Dual aspect concept B. Money measurement concept

C. Going concern concept D. Consistency

4. According to which concept is the profit or loss calculated, by taking the income and expenditure?

A. Dual spect concept B. Money measurement concept

C. Matching concept D. Cost

5. Under which principle is the provision for bad debts created?

A. Dual aspect concept B. Consistency

C. Going concern D. Conservatism

6. According to which concept, monetary transactions only are recorded in the books?

A. Money measurement concept B. Dual aspect concept

C. Accrual concept D. Prudence concept

7. What is the life of a business according to going concern concept?

A. Limited life B. Indefinite life C. Very long life D. Very short life

8. Employees skills are not recorded in the books of account. Which accounting principle is involved?

A consistency B money measurement C prudence D realization

9. A business decides to use the same depreciation method every year. Which accounting principle is

the business following?

A consistency B duality C matching D prudence

10. A business charges $1500 to its Profit and Loss Account for electricity. This includes $200 for an

electricity bill that is outstanding at the year end. Which accounting principle has been applied?

A duality B matching C prudence D realization


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11. The owners capital is regarded as a liability of the business. Which accounting principle is being

applied?

A business entity B consistency C matching D realization

12. Money received from a customer must be recorded in the debtors account and the bank account.

What accounting principle is being applied?

A business entity B duality C matching D money measurement

13. A trader wants his accounts to record his customers satisfaction with his business. Which

accounting principle prevents this?

A business entity B duality C money measurement D realization

14. The owner of a business should not include his personal assets and liabilities in the businessBalance Sheet. Which accounting principle is being applied?

A business entity B consistency C money measurement D realization

15. The same accounting treatment should be applied to similar items at all times. Which accounting

principle is being applied?

A consistency B duality C money measurement D prudence

16. Unpaid rent is shown as a liability in a balance sheet. Which accounting principle is this an example

of?

A consistency B duality C matching D prudence

17. Raul is preparing his final accounts. What should he do to observe the principle of prudence?

A include all foreseeable losses B include all foreseeable revenue

C show expenses as low as possible D show prepayments as expenses

18. A business spends $100 000 on staff training. The $100 000 is entered as an expense in the

business accounts, but the increased value of staff to the business is not recorded. Which accounting

principle is being applied?

A business entity B matching C money measurement D prudence

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