CFI ACCOUNTING PRINCIPLES & STANDARDS TEST RATED 100 % CORRECT

ESTUDY CFI ACCOUNTING PRINCIPLES & STANDARDS TEST RATED 100 % CORRECT Accounting Principles - ANSWER Fundamental rules & concepts that apply to accounting in general. These provide the framework on which more detailed accounting standards are based. Accrual Basis Accounting - ANSWER States that financial aspects of economic events recorde d in the accounting period in which they occur regardless of whether cash has been exchanged. GOES WITH BOTH REVENUE & EXPENSES: they are recognized when incurred. Revenue Recognition Principle - ANSWER Consistent with accrual accounting, this principle states that revenue is EARNED & RECOGNIZED UPON PRODUCT DELIVERY or SERVICE COMPLETION. Even if the service or product was paid for upfront! Prepaid goods or services will be added to revenue d epending on the situation. A prepaid 1 year subscription, that is normally monthly can be added to revenue monthly or at year end. Historical Cost Principle - ANSWER Accounting principle that states the companies must record assets & liabilities at th e cost at which they were original acquired for. Assets & Liabilities stay on balance sheet at this original cost even if the market value changes. ESTUDY EXCEPT for when Business Combinations occur or when goodwill is being being revalued for impairment. Matchi ng Principle - ANSWER Accounting principle that dictates that the expenses of doing business must be recorded in the SAME PERIOD as the economic benefits they generate, irrespective as to when they were actually paid. Example: Depreciation expense is a n example of this principle because the cost of a fixed asset is being allocated over its useful life as it generates economic benefits over that time. Materiality Principle - ANSWER An accounting principle that states that only items that are "materi al" or that "make a difference" should be presented in financial statements. Conservatism Principle - ANSWER Accounting principle that provides guidance on how to record transactions particularly those involving uncertainty or estimates. States that i f a situation arises where there are two acceptable alternatives for reporting an item that alternative that will result in a SMALLER NET INCOME AND/OR ASSET BALANCE SHOULD BE USED. Economic Entity Principle - ANSWER Accounting principle that allows f inancial statement users to assess the value & performance of a business separately from its ownership activity. TRANSACTIONS CARRIED OUT BY A BUSINESS ARE SEPARTED FROM ITS OWNER. TRANSACTIONS CARRIED OUT BY DIFFERENT BUSINESSES MUST BE ACCOUNTED SEPARETLY. ESTUDY EXAMPLE: a business owner purchases an asset with funds from his personal bank account. This asset CANNOT be recorded on the financial statements according unless it is sold or c ontributed to the company. Going Concern Principle - ANSWER The accounting principle that requires that financial statements will be prepared assuming that the organization will continue to operate its business for the foreseeable future. Without this principle, it would be impossible to record items such as... 1. Accrued Expenses 2. Prepayments 3. Depreciation of Fixed Assets Monetary Unit Principle - ANSWER This accounting principle states that only business transactions that are quantifiable & can be expressed in the terms of a monetary unit can be recorded on the financial statements. Full Disclosure Principle - ANSWER Accounting principle that states that any info that would be considered material to a user of the financial statements sho uld be disclosed in the statements or the footnotes. Consistency Principle - ANSWER Under the consistency principle companies are required to have CONSISTENT info that is prepared using the same accounting methods for similar events & transactions ove r time. This is so meaningful comparisons can be made between...