GAAPs Questions and Answers
The Business Entity Concept
Provides that the accounting for a business or organization is to be kept separate from the personal affairs of its owner, or from any other business or organization.
The Continuing Concern Concept
Assumes that a business will contin...
The Business Entity Concept - answer Provides that the accounting for a business or
organization is to be kept separate from the personal affairs of its owner, or from any
other business or organization.
The Continuing Concern Concept - answer Assumes that a business will continue to
operate unless it is known that it will not.
The Principle of Conservatism - answer Accounting for a business should be fair and
reasonable. Accountants are required in their work to make evaluations and estimates,
to deliver opinions, and to select procedures. They should do this in a way that assets
or profits are neither overstated nor understated.
The Objectivity Principle - answer Accounting is based on objective evidence and
therefore anyone viewing the evidence will create the same transaction.
The Revenue Recognition Convention - answer Revenue is to be recorded in the
accounts at the time the transaction is completed.
The Time Period Concept - answer Requires that accounting takes place over
specific time periods known as fiscal periods.
The Matching Principle - answer Expenses incurred to generate revenues must be
recognized at the same time as the revenue is.
The Cost Principle - answer States that assets should be recorded at their actual
cost measured on the date of purchase. Cost is not adjusted with changes in market.
The Consistency Principle - answer Business should apply the same accounting
methods from period to period. If a change is made, they must explain it clearly on the
financial statements.
The Materiality Principle - answer Accountants must follow GAAPs except in cases
where it would be too expensive or difficult, and where it makes no real difference if the
rules are ignored. It must not affect the net income of the company or the reader's ability
to judge the financial statements, if a rule is temporarily ignored.
The Full Disclosure Principle - answer All information needed to understand a
company's financial statements is included in the financial statements.
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