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Generally Accepted Accounting Principles Include the Following Assumptions, Concepts, and Constraints
Matching
Generally accepted accounting principles include the following assumptions, concepts, and constraints:
For each of the situations, identify the assumption, concept, constraint, or recognition criteria that provides the best explanation by selecting the appropriate code. Each code will be used more than once; however, each situation only has one correct answer.
Premises:
Insurance expense is recorded each month, although the insurance policy covers a full year and is paid annually.
A company's accountant notices that the petty cash account was not adjusted prior to preparing the year-end financial statements and the account balance is incorrect by $ 13.52. However, the accountant decides to release the financial statements without making the correction.
The company's sales are made on credit, but to keep accounting costs down, sales are recorded when the customer accounts are paid.
When preparing financial statements, the company's policy is to record all correcting entries, whether the correction is for $ 200,000 or $ 2.
The proprietor's babysitting costs are recorded in the company expense accounts.
After obtaining an independent appraisal that indicated a significant increase in value over original cost, the company restated its land at the higher amount. The company has not adopted the revaluation model for accounting for long-lived assets.
A former employee has sued the company for a large amount, but no mention is made of this case in the financial statements.
One third of the company's sales were made to a related party and this fact is disclosed in the financial statements.
The company has a large number of accounts receivable that individually have small balances. In order to determine the allowance for doubtful accounts, the company uses an estimate based on past experience rather than taking the time to evaluate the collectibility of individual accounts.
A patent with an indefinite life has an original cost of $ 12,500 although the company was recently offered $ 1,000,000 by another company who wants to buy it.
The proprietor of an unincorporated business maintains two bank accounts and two sets of accounting records—one for household expenses, and the other for business purposes.
Interest is payable semi-annually and is recorded only when paid, with no adjustment at year end even though payment dates do not coincide with the year-end date.
All assets are restated at their liquidation values.
The company records revenue when services are provided, not when the customers pay for the service.
The company's inventory's cost is $ 50,000, its retail value is $ 120,000, and if liquidated could be sold at auction for $ 30,000. The inventory is reported at $ 50,000 on the company's balance sheet.
The company accountant recently spent two days calculating the accrued utilities expense on 130 individual apartments for the last few days of the year. In the past, the amounts were estimated.
Responses:
Cost concept
Cost constraint
Full disclosure
Economic entity concept
Materiality constraint
Revenue recognition criteria
Matching
Going concern assumption
Correct Answer:
Premises:
Responses:
Insurance expense is recorded each month, although the insurance policy covers a full year and is paid annually.
A company's accountant notices that the petty cash account was not adjusted prior to preparing the year-end financial statements and the account balance is incorrect by $ 13.52. However, the accountant decides to release the financial statements without making the correction.
The company's sales are made on credit, but to keep accounting costs down, sales are recorded when the customer accounts are paid.
When preparing financial statements, the company's policy is to record all correcting entries, whether the correction is for $ 200,000 or $ 2.
The proprietor's babysitting costs are recorded in the company expense accounts.
After obtaining an independent appraisal that indicated a significant increase in value over original cost, the company restated its land at the higher amount. The company has not adopted the revaluation model for accounting for long-lived assets.
A former employee has sued the company for a large amount, but no mention is made of this case in the financial statements.
One third of the company's sales were made to a related party and this fact is disclosed in the financial statements.
The company has a large number of accounts receivable that individually have small balances. In order to determine the allowance for doubtful accounts, the company uses an estimate based on past experience rather than taking the time to evaluate the collectibility of individual accounts.
A patent with an indefinite life has an original cost of $ 12,500 although the company was recently offered $ 1,000,000 by another company who wants to buy it.
The proprietor of an unincorporated business maintains two bank accounts and two sets of accounting records—one for household expenses, and the other for business purposes.
Interest is payable semi-annually and is recorded only when paid, with no adjustment at year end even though payment dates do not coincide with the year-end date.
All assets are restated at their liquidation values.
The company records revenue when services are provided, not when the customers pay for the service.
The company's inventory's cost is $ 50,000, its retail value is $ 120,000, and if liquidated could be sold at auction for $ 30,000. The inventory is reported at $ 50,000 on the company's balance sheet.
The company accountant recently spent two days calculating the accrued utilities expense on 130 individual apartments for the last few days of the year. In the past, the amounts were estimated.
Premises:
Insurance expense is recorded each month, although the insurance policy covers a full year and is paid annually.
A company's accountant notices that the petty cash account was not adjusted prior to preparing the year-end financial statements and the account balance is incorrect by $ 13.52. However, the accountant decides to release the financial statements without making the correction.
The company's sales are made on credit, but to keep accounting costs down, sales are recorded when the customer accounts are paid.
When preparing financial statements, the company's policy is to record all correcting entries, whether the correction is for $ 200,000 or $ 2.
The proprietor's babysitting costs are recorded in the company expense accounts.
After obtaining an independent appraisal that indicated a significant increase in value over original cost, the company restated its land at the higher amount. The company has not adopted the revaluation model for accounting for long-lived assets.
A former employee has sued the company for a large amount, but no mention is made of this case in the financial statements.
One third of the company's sales were made to a related party and this fact is disclosed in the financial statements.
The company has a large number of accounts receivable that individually have small balances. In order to determine the allowance for doubtful accounts, the company uses an estimate based on past experience rather than taking the time to evaluate the collectibility of individual accounts.
A patent with an indefinite life has an original cost of $ 12,500 although the company was recently offered $ 1,000,000 by another company who wants to buy it.
The proprietor of an unincorporated business maintains two bank accounts and two sets of accounting records—one for household expenses, and the other for business purposes.
Interest is payable semi-annually and is recorded only when paid, with no adjustment at year end even though payment dates do not coincide with the year-end date.
All assets are restated at their liquidation values.
The company records revenue when services are provided, not when the customers pay for the service.
The company's inventory's cost is $ 50,000, its retail value is $ 120,000, and if liquidated could be sold at auction for $ 30,000. The inventory is reported at $ 50,000 on the company's balance sheet.
The company accountant recently spent two days calculating the accrued utilities expense on 130 individual apartments for the last few days of the year. In the past, the amounts were estimated.
Responses:
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