GENERAL ACCEPTED ACCOUNTING
PRINCIPLES (GAAP), CONCEPTS and
ASSUMPTIONS TEST WITH 100%
CORRECT ANSWERS
GENERAL ACCEPTED ACCOUNTING PRINCIPLES - answer Are principles (including concepts and
assumptions), which have gained international acceptance in the business world and
accountancy profession. The accounting procedures, profit determination, preparation and
presentation of financial statements must be in conformity with the generally accepted
accounting principles.
Business Entity Concept - answer Under this concept, the business is treated, as having a
separate personality from the owner/s
Example - transactions of the business must be divorced from the transactions of the owner/s.
Hence, the business as entity can acquire properties in its own name, it can sue or be sued.
Going Concern Concept - answer Under this concept, it is assumed that the business will
continue its operations indefinitely unless there is evidence to the contrary.
Liquidation - answer is an event that usually occurs when a company is insolvent, meaning it
cannot pay its obligations as and when they come due.
Realizable value/Net realizable value - answer is the value of an asset that can be realized upon
the sale of the asset
Acquisition costs - answer also referred to as the cost of acquisition, is the cost that a company
recognizes on its books for property or equipment after adjusting for discounts, incentives,
closing costs and other necessary expenditures but before sales taxes.
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