Intermediate Accounting Exam 1- Assumptions, Principles and Constraints with Complete Solutions!

Revenue should be recognized when the performance obligation is satisfied, which is usually when the sale has been made and the product delivered to the customer - ANSWER-revenue recognition principle 4 basic assumptions - ANSWER-1. economic entity 2. going concern 3. monetary unit 4. periodicity 4 enhancing qualities - ANSWER-1. comparability 2. verifiability 3. timeliness 4. understandability economic entity - ANSWER-economic activity can be identified with a particular unit of accountability - corporation is kept separate from owners going concern - ANSWER-company will have a long life - will last long enough to fulfill commitments - depreciation and amortization policies justifiable monetary unit - ANSWER-money is common denominator for economic activity and provides a basis for accounting measurement - relevant, useful, universally available, understandable periodicity - ANSWER-company can divide its economic activities into artificial time periods - monthly, quarterly, yearly Basic principles of accounting - ANSWER-1. measurement 2. revenue recognition 3. expense recognition 4. full disclosure full disclosure principle - ANSWER-nature and amount of info included in financial reports reflects a series of judgement trade-offs - detail to disclose matters that make a difference to users - sufficient condensation to make the info understandable Recognized item - ANSWER-1. basic element 2. measureable with sufficient certainty 3. relevant and reliable All information necessary to ensure that the financial statements are not misleading should be reported - ANSWER-full disclosure principle This concept eliminates the "liquidation concept" in viewing business affairs - ANSWER-going concern assumption Measurement of the standing and progress of the entities should be made at regular intervals rather than at the end of the business's life - ANSWER-periodicity assumption The recorded amount of an acquired item should be the purchase price of the item at the date of acquisition - ANSWER-historical cost principle There must be a complete and understandable reporting on the financial statements - ANSWER-full disclosure principle The president of a business should not let his spouse use the company credit card for personal gas purchases - ANSWER-economic entity assumption Thi