Accounting - concepts & principles
GAAP - answer - Generally Accepted Accounting Principles
- Widely accepted set of rules, concepts and principles
- Achieve consistency
- Approach comparability
Business Entity Assumption - answer - 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 - answer - 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 - answer 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 - answer - 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 - answer - the economic life of a business can be divided into artificial
time periods
Fiscal year - answer 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 - answer - revenue recognized when received
- not GAAP
GAAP - answer - Generally Accepted Accounting Principles
- Widely accepted set of rules, concepts and principles
- Achieve consistency
- Approach comparability
Business Entity Assumption - answer - 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 - answer - 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 - answer 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 - answer - 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 - answer - the economic life of a business can be divided into artificial
time periods
Fiscal year - answer 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 - answer - revenue recognized when received
- not GAAP
