Accounting Principles IGCSE with 100%
correct answers
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 realisation 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).
correct answers
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 realisation 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).
