Accounting Principles Flashcards
7 cards from real Accounting Online Program 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
When a company anticipates a loss but not a gain under uncertainty, it is applying:
Answer: Conservatism principle
Conservatism (prudence) directs accountants to recognize potential losses immediately but wait until gains are certain before recording them.
Which qualitative characteristic makes financial information useful for comparing two different companies?
Answer: Comparability
Comparability allows users to identify similarities and differences between companies by applying consistent accounting standards.
The economic entity assumption states that:
Answer: A business's finances must be kept separate from its owner's personal finances
The economic entity assumption requires that a business's transactions be recorded separately from those of its owners or other entities.
Which of the following best describes the monetary unit assumption?
Answer: Only transactions that can be expressed in money are recorded
The monetary unit assumption holds that only economically significant events expressible in money are recorded in the accounts.
Under the time period assumption, a company prepares financial statements:
Answer: For artificial but equal time intervals
The time period assumption divides an entity's continuous life into defined intervals (months, quarters, years) for reporting purposes.
If a company switches from FIFO to LIFO inventory costing without disclosure, which principle is violated?
Answer: Full disclosure principle
Changing accounting methods without disclosure violates the full disclosure principle, which requires reporting all material changes.
Which of the following is NOT one of the four enhancing qualitative characteristics under GAAP/FASB frameworks?
Answer: Conservatism
Comparability, verifiability, timeliness, and understandability are the four enhancing qualitative characteristics; conservatism is a constraint, not an enhancing characteristic.