Accounting Principles IGCSE Questions
and Answers Correctly Solved
The historical cost principle - Answer This principle requires that all assets are normally shown at cost
price. It is the cost price that is used as a basis of valuation of an asset.
The business entity principle - Answer This principle implies that the affairs of the business are treated
as being separate from the nonbusiness activities of its owner/s.
The dual aspect principle - Answer This principle states that there are two aspects to every transaction.
One account is always debited and another is credited. These two aspects are always equal to each
other. The name given to this method of recording transactions is : The double entry method.
The time interval principle - Answer Financial Statements are prepared at regular intervals of one year.
This is an underlying principle of accounting.
The money measurement principle - Answer Accounting information is concerned with facts that: 1. can
be measured in money 2. most people will agree to that money value.
The prudence principle - Answer There are two aspects to this principle: 1. All assets should be
understated rather than overstated and all liabilities should be overstated rather than understated. The
accountant should choose the figure that will cause the capital of the firm to be shown at a lower
amount rather than at a higher one. This ensures 'a true and fair view' of the balance sheet. 2. Profits
should not be anticipated and all loses should be recorded. This ensures 'a true and fair view' of the
Profit and Loss account.
The realization principle - Answer Profits should be realized on a sale when the title has passed. Profits
should be treated as realized only when realized in the form of cash or of other assets (e.g. Trade
receivables).
The going concern principle - Answer This principle implies that the business will continue to operate for
the foreseeable future.
and Answers Correctly Solved
The historical cost principle - Answer This principle requires that all assets are normally shown at cost
price. It is the cost price that is used as a basis of valuation of an asset.
The business entity principle - Answer This principle implies that the affairs of the business are treated
as being separate from the nonbusiness activities of its owner/s.
The dual aspect principle - Answer This principle states that there are two aspects to every transaction.
One account is always debited and another is credited. These two aspects are always equal to each
other. The name given to this method of recording transactions is : The double entry method.
The time interval principle - Answer Financial Statements are prepared at regular intervals of one year.
This is an underlying principle of accounting.
The money measurement principle - Answer Accounting information is concerned with facts that: 1. can
be measured in money 2. most people will agree to that money value.
The prudence principle - Answer There are two aspects to this principle: 1. All assets should be
understated rather than overstated and all liabilities should be overstated rather than understated. The
accountant should choose the figure that will cause the capital of the firm to be shown at a lower
amount rather than at a higher one. This ensures 'a true and fair view' of the balance sheet. 2. Profits
should not be anticipated and all loses should be recorded. This ensures 'a true and fair view' of the
Profit and Loss account.
The realization principle - Answer Profits should be realized on a sale when the title has passed. Profits
should be treated as realized only when realized in the form of cash or of other assets (e.g. Trade
receivables).
The going concern principle - Answer This principle implies that the business will continue to operate for
the foreseeable future.
