Accounting Principles Flashcards
7 cards from real ABA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Accounting Principles flashcards as text
Which of the following is an example of applying the principle of conservatism?
Answer: Writing down inventory to market value when it falls below cost
Conservatism requires recognizing losses (like inventory write-downs) as soon as they are likely, even before they are fully realized.
A company changes its depreciation method from straight-line to double-declining balance. What must it do under the consistency principle?
Answer: Disclose the change and its financial effect in the notes
Changes in accounting methods are allowed but must be disclosed in the financial statement notes, including the effect on net income.
Under the revenue recognition principle (ASC 606), revenue should be recognized when:
Answer: Performance obligations are satisfied
ASC 606 requires revenue to be recognized when (or as) the entity satisfies its performance obligations by transferring control to the customer.
Which accounting principle requires that expenses be recorded in the period they are incurred, regardless of when they are paid?
Answer: Matching principle / accrual basis
The accrual basis and matching principle require expenses to be recorded when incurred, not when cash is paid.
The time period assumption allows accountants to do which of the following?
Answer: Prepare financial statements for specific intervals shorter than a business's life
The time period assumption enables preparation of periodic (monthly, quarterly, annual) financial reports despite the business's continuous existence.
A company fails to accrue $500 in salaries owed at year-end. Which financial statement effect results?
Answer: Net income is overstated and liabilities are understated
Failing to record accrued salary expense overstates net income (expense omitted) and understates liabilities (payable not recorded).
Which of the following items would most likely be considered immaterial and expensed immediately under the materiality principle?
Answer: A $10 calculator used in the office
A $10 calculator has an insignificant cost and would not affect financial statement users' decisions, making it immaterial and immediately expensible.