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
A company is unsure whether to record a contingent liability. Under conservatism, it should record the liability when the loss is:
Answer: Probable and reasonably estimable
ASC 450 requires a contingent liability to be accrued only when the loss is probable and the amount can be reasonably estimated.
Which principle is most directly related to recording prepaid insurance as an asset rather than an immediate expense?
Answer: Matching principle
Prepaid insurance is an asset because the matching principle requires the expense to be recognized over the periods the coverage benefits.
The FASB's conceptual framework identifies two fundamental qualitative characteristics of useful financial information. They are:
Answer: Relevance and faithful representation
The FASB framework identifies relevance and faithful representation as the two fundamental qualitative characteristics.
Which of the following scenarios best illustrates the revenue recognition principle under ASC 606?
Answer: Record revenue when control of goods or services is transferred to the customer
ASC 606 requires revenue to be recognized when (or as) a performance obligation is satisfied, which occurs when control transfers to the customer.
Which accounting principle supports recording a building at $500,000 even though it has appreciated to $750,000 in market value?
Answer: Historical cost principle
The historical cost principle requires assets to remain on the books at their original acquisition cost unless a specific exception applies.
A small gift shop expenses its $15 wastebasket purchases immediately. Which concept justifies this treatment?
Answer: Materiality principle
Materiality permits companies to expense minor items immediately because capitalizing them would not affect any user's financial decisions.
Financial statements are prepared with the assumption that the purchasing power of the dollar is stable. This relates to which assumption?
Answer: Monetary unit assumption
The monetary unit assumption treats the dollar as a stable unit of measure, which means traditional GAAP statements do not adjust for inflation.