Accounting Online Program Accounting Principles 2 — Questions and Answers
Question 1: Which accounting principle requires that expenses be recorded in the same period as the revenues they helped generate?
- Cost principle
- Matching principle (Correct answer)
- Revenue recognition principle
- Conservatism principle
Correct answer: Matching principle
The matching principle dictates that expenses must be recognized in the same period as the related revenues.
Question 2: A company uses the same depreciation method year after year. Which principle does this demonstrate?
- Materiality principle
- Going concern principle
- Consistency principle (Correct answer)
- Full disclosure principle
Correct answer: Consistency principle
The consistency principle requires companies to apply the same accounting methods across periods for comparability.
Question 3: Under the going concern assumption, assets are typically recorded at:
- Market value
- Liquidation value
- Historical cost (Correct answer)
- Replacement cost
Correct answer: Historical cost
Because the business is assumed to continue operating, assets are recorded at historical cost rather than forced-sale values.
Question 4: Which of the following is an example of applying the materiality principle?
- Capitalizing a $5 stapler as a fixed asset
- Expensing a $200 printer immediately rather than depreciating it (Correct answer)
- Recording all transactions regardless of size
- Delaying revenue recognition until cash is received
Correct answer: Expensing a $200 printer immediately rather than depreciating it
Materiality allows immaterial items to be expensed immediately because the effort of capitalizing them would not affect users' decisions.
Question 5: The principle that financial statements should include all information necessary for users to make informed decisions is called:
- Objectivity principle
- Full disclosure principle (Correct answer)
- Conservatism principle
- Reliability principle
Correct answer: Full disclosure principle
The full disclosure principle requires that any information significant enough to influence decisions be included in financial statements or notes.
Question 6: A business records revenue when it is earned, not when cash is collected. This reflects which accounting basis?
- Cash basis accounting
- Accrual basis accounting (Correct answer)
- Modified cash basis accounting
- Tax basis accounting
Correct answer: Accrual basis accounting
Accrual basis accounting recognizes revenue when earned and expenses when incurred, regardless of cash flow timing.
Question 7: Which principle states that a business should record assets at the price paid to acquire them?
- Fair value principle
- Historical cost principle (Correct answer)
- Market value principle
- Lower-of-cost-or-market principle
Correct answer: Historical cost principle
The historical cost principle requires assets to be recorded at their original purchase price, providing objectivity and verifiability.
Accounting Online Program Accounting Principles 2
Which accounting principle requires that expenses be recorded in the same period as the revenues they helped generate?