Accounting Principles EXAM Questions With
Accurate Solutions
The personal assets of the owner of a company will not appear on the company's balance sheet
because of which principle/guideline? - CORRECT ANSWER✅✅✅Economic Entity
The owner's assets are not shown on the balance sheet of the business. This is true even if the
business is a sole proprietorship.
Which principle/guideline requires a company's balance sheet to report its land at the amount the
company paid to acquire the land, even if the land could be sold today at a significantly higher
amount? - CORRECT ANSWER✅✅✅Cost
The cost principle requires the accountant to show assets at cost and expenses at cost rather than
at higher amounts. Accountants are not allowed to recognize gains from merely holding the land.
To be able to recognize a gain on the land, the company would have to sell the land.
Which principle/guideline allows a company to ignore the change in the purchasing power of the
dollar over time? - CORRECT ANSWER✅✅✅Monetary Unit
The monetary unit assumption is that the dollar is stable over time—no inflation.
Which principle/guideline requires the company's financial statements to have footnotes
containing information that is important to users of the financial statements? - CORRECT
ANSWER✅✅✅Full Disclosure
The full disclosure principle requires businesses to disclose information that is relevant to the
decisions of investors and creditors.
Which principle/guideline justifies a company violating an accounting principle because the
amounts are immaterial? - CORRECT ANSWER✅✅✅Materiality
, When an amount is so small/immaterial an accountant may decide to ignore an accounting
principle. For example, a large company might purchase a $300 digital camera to be used for the
next five years. The matching principle would call for an expense (depreciation) of $60 per year
for five years. Most accountants would violate the matching principle and expense the entire
$300 in the year it is acquired. The rationale is that the decision makers would not be misled by
the small differences of $240 in the year purchased and $60 per year in each of the following
four years
Which principle/guideline is associated with the assumption that the company will continue on
long enough to carry out its objectives and commitments? - CORRECT
ANSWER✅✅✅Going Concern
A very large corporation's financial statements have the dollar amounts rounded to the nearest
$1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny? -
CORRECT ANSWER✅✅✅Materiality
As long as the digits omitted are small in relation to the true amounts, companies will round
numbers so as to emphasize the relevant digits. The rationale is that no one will be misled by the
omission of the insignificant digits.
Accountants might recognize losses but not gains in certain situations. For example, the
company might write-down the cost of inventory, but will not write-up the cost of inventory.
Which principle/guideline is associated with this action? - CORRECT
ANSWER✅✅✅Conservatism
Conservatism involves choosing between acceptable alternatives. In other words conservatism is
used to break a tie between two acceptable choices of how to account for something. It is also
associated with recognizing losses but not gains for certain situations.
Which principle/guideline directs a company to show all the expenses related to its revenues of a
specified period even if the expenses were not paid in that period? - CORRECT
ANSWER✅✅✅Matching
When the accountant has to choose between two acceptable alternatives, the accountant should
select the alternative that will report less profit, less asset amount, or a greater liability amount.
This is based upon which principle/guideline? - CORRECT ANSWER✅✅✅Conservatism
Accurate Solutions
The personal assets of the owner of a company will not appear on the company's balance sheet
because of which principle/guideline? - CORRECT ANSWER✅✅✅Economic Entity
The owner's assets are not shown on the balance sheet of the business. This is true even if the
business is a sole proprietorship.
Which principle/guideline requires a company's balance sheet to report its land at the amount the
company paid to acquire the land, even if the land could be sold today at a significantly higher
amount? - CORRECT ANSWER✅✅✅Cost
The cost principle requires the accountant to show assets at cost and expenses at cost rather than
at higher amounts. Accountants are not allowed to recognize gains from merely holding the land.
To be able to recognize a gain on the land, the company would have to sell the land.
Which principle/guideline allows a company to ignore the change in the purchasing power of the
dollar over time? - CORRECT ANSWER✅✅✅Monetary Unit
The monetary unit assumption is that the dollar is stable over time—no inflation.
Which principle/guideline requires the company's financial statements to have footnotes
containing information that is important to users of the financial statements? - CORRECT
ANSWER✅✅✅Full Disclosure
The full disclosure principle requires businesses to disclose information that is relevant to the
decisions of investors and creditors.
Which principle/guideline justifies a company violating an accounting principle because the
amounts are immaterial? - CORRECT ANSWER✅✅✅Materiality
, When an amount is so small/immaterial an accountant may decide to ignore an accounting
principle. For example, a large company might purchase a $300 digital camera to be used for the
next five years. The matching principle would call for an expense (depreciation) of $60 per year
for five years. Most accountants would violate the matching principle and expense the entire
$300 in the year it is acquired. The rationale is that the decision makers would not be misled by
the small differences of $240 in the year purchased and $60 per year in each of the following
four years
Which principle/guideline is associated with the assumption that the company will continue on
long enough to carry out its objectives and commitments? - CORRECT
ANSWER✅✅✅Going Concern
A very large corporation's financial statements have the dollar amounts rounded to the nearest
$1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny? -
CORRECT ANSWER✅✅✅Materiality
As long as the digits omitted are small in relation to the true amounts, companies will round
numbers so as to emphasize the relevant digits. The rationale is that no one will be misled by the
omission of the insignificant digits.
Accountants might recognize losses but not gains in certain situations. For example, the
company might write-down the cost of inventory, but will not write-up the cost of inventory.
Which principle/guideline is associated with this action? - CORRECT
ANSWER✅✅✅Conservatism
Conservatism involves choosing between acceptable alternatives. In other words conservatism is
used to break a tie between two acceptable choices of how to account for something. It is also
associated with recognizing losses but not gains for certain situations.
Which principle/guideline directs a company to show all the expenses related to its revenues of a
specified period even if the expenses were not paid in that period? - CORRECT
ANSWER✅✅✅Matching
When the accountant has to choose between two acceptable alternatives, the accountant should
select the alternative that will report less profit, less asset amount, or a greater liability amount.
This is based upon which principle/guideline? - CORRECT ANSWER✅✅✅Conservatism
