Exam (elaborations)
Principles of Accounting VYC1
- Module
- Ap Comp. Gov. Unit 2 test
- Institution
- Ap Comp. Gov. Unit 2 Test
Principles of Accounting VYC1
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Accounting - concepts & principlesGAAP - ANS-- Generally Accepted Accounting Principles
- Widely accepted set of rules, concepts and principles
- Achieve consistency
- Approach comparability
Business Entity Assumption - ANS-- All business transactions ≠ personal transactions
- Accounting records must not include personal assets or liabilities of the owner.
- a business is accounted separately from other business entities, including its owner
Example:
Mr. Adolfo, the owner of Hair, There and Everywhere hair salon, recently bought
supplies for his Art Management Class.
— This is a personal transaction of the owner and it should not be recorded in the
accounting books of the business
Going Concern Assumption - ANS-- A business entity is assumed to remain in
existence for an indeterminate period of time
- A company will continue long enough to carry out its objectives and commitments.
- The operations of a business will not stop in the near future and it will not be forced to
liquidate its assets to pay off its liabilities.
- It also allows accountants to defer recognition of expenses in the future.
- reflects assumption that business will continue operating instead of being closed or
sold
Example:
Company A rents a building for 10,000 per month. On January 1, 2016, the company
paid the rent for two years in the amount of 2,400,000. The company has not yet used
the building but they already paid the rent. The accountant records the payment as an
asset rather than an expense. (Prepaid rent)
— If the company is not a "going concern" then the payment will just be an expense
because operations will stop in the near future.
going concern - ANS-a company is not a ——— when they:
- Pay obligations on time
- Loan defaults
- Suppliers do not sell on credit to the company
- Legal proceedings against the company
, Monetary unit Assumption - ANS-- only transaction data that can be expressed in terms
of money be included in the accounting records
Example:
Hiring an employee
— do not record
Paying an employee
— record
Time period Assumption - ANS-- the economic life of a business can be divided into
artificial time periods
Fiscal year - ANS-the 12-month period used by a government and the business world
for its record-keeping, budgeting, revenue-collecting, and other financial management
purposes
Cash basis - ANS-- revenue recognized when received
- not GAAP
- Records only cash receipts and cash payments. It ignores receivables, payables and
depreciation.
- records an expense when its incurred
Accrual - ANS-- revenue recognized when earned and realizable
- Records the effect of each transaction as it occurs
- GAAP
- records only cash receipts as revenue
- records only cash payments as expenses
- all business transactions are required to be recognized in the period in which they
occurred
- Financial statements will also be accurate and reliable in terms of assessing the past
performance of the company.
- Financial statements for a particular period properly reflect the financial transactions
pertaining to that period.
Example:
Andrew established an ukay-ukay in the country. The income from Andrew's business
primarily comes for selling goods to customers. Sales to customers can be cash or on
credit.
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