The Going Concern concept assumes a business will operate for the foreseeable future
What does the Accrual concept require regarding revenue and expense recognition?
When earned or incurred
Name four key fundamental accounting concepts.
Accruals, Going Concern, Consistency, Prudence
What is an example of applying the Consistency concept?
Using FIFO for inventory
Why is the Going Concern concept crucial for asset valuation?
Historical cost basis
What does the Consistency concept enable stakeholders to compare effectively?
Financial statements over time
Fundamental accounting concepts help ensure financial statements are accurate and useful for stakeholders.
True
What do fundamental accounting concepts guide in financial statements?
Preparation and presentation
Why is the Going Concern concept essential for depreciating assets over their lifespan?
Avoids premature write-offs
What does the Accrual concept require regarding expense recognition?
When incurred, regardless of payment
The Matching principle requires Cost of Goods Sold (COGS) to be recorded with the revenue from sales.
True
The Consistency concept requires using the same accounting methods from period to period.
True
The Going Concern concept assumes a business will cease operations in the near future.
False
The Matching principle ensures expenses are recognized in the same period as the related revenues
The Going Concern concept assumes that a business will continue operating indefinitely
The Going Concern concept allows assets to be valued at liquidation value.
False
What does the Prudence concept require accountants to avoid?
Overstating assets and profits
The Prudence concept avoids overstating assets and profits
Under the Going Concern concept, how are assets and liabilities valued?
At historical cost
Under the Going Concern principle, equipment with a lifespan of 10 years is depreciated annually
Under the Accruals concept, utility expenses incurred in December are recognized even if paid in January
The Consistency concept mandates that a business uses the same accounting methods from one period to the next
What is an example of applying the Consistency concept?
Using FIFO for inventory
What is the importance of the Consistency concept for stakeholders?
Enables comparability of trends
The Going Concern concept assumes a business will continue indefinitely without liquidation
Provide an example of the Consistency concept in action.
Using straight-line depreciation consistently
Match the accounting concept with its explanation:
Consistency ↔️ Same methods across periods
Accruals ↔️ Recognize when earned or incurred
What is accrued revenue under the Accrual concept?
Revenue earned but unpaid
The Matching principle ensures expenses are recognized in the same period as the related revenues
What does the Matching principle ensure about expenses and revenues?
Expenses match related revenues
Give an example of applying the Accruals concept.
Recording utility expenses in December
The Matching principle provides an accurate view of net income.
True
What does the Accruals concept state about recognizing revenues and expenses?
When they occur
The Revenue Recognition principle states that revenue should be recorded when it is earned
The Consistency concept requires businesses to use the same accounting methods from period to period.
True
Under the Revenue Recognition principle, revenue from consulting services provided in December is recognized in December, even if payment is received in January.
True
The Going Concern concept assumes that a business will operate indefinitely
An example of the Prudence concept is estimating potential bad debts to reduce asset value
Illustrate the Prudence concept with an example.
Recording an allowance for bad debts
The Going Concern concept prevents premature asset write-offs.