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
Which of the following would be a violation of the economic entity assumption?
Answer: Recording the owner's mortgage payment as a business expense
Recording the owner's personal mortgage as a business expense mixes personal and business finances, violating the economic entity assumption.
Which accounting principle most directly prevents companies from delaying the recognition of obvious losses?
Answer: Conservatism principle
The conservatism principle requires that losses be recognized as soon as they are probable, preventing the artificial inflation of reported earnings.
For information to be faithfully represented, it must be complete, neutral, and:
Answer: Free from error
Faithful representation under the FASB framework requires financial information to be complete, neutral, and free from material error.
A law firm records legal service revenue when the case is won and the fee is collectible, not when cash arrives. This is an example of:
Answer: Accrual accounting and revenue recognition
Recognizing revenue when earned (case won, fee collectible) rather than when collected is the core of accrual accounting and the revenue recognition principle.
Which of the following represents a going concern issue that would require disclosure?
Answer: A company has substantial debt maturing within 12 months with no financing plan
Substantial debt due soon with no refinancing plan raises serious doubt about the entity's ability to continue operating, requiring going concern disclosure.
Under the cost-benefit constraint in financial reporting, information should only be provided when:
Answer: The benefits of the information outweigh the costs of providing it
The cost-benefit constraint holds that the usefulness of financial information must justify the cost of preparing and presenting it.
Which principle requires that a company disclose the accounting methods it uses, such as straight-line vs. declining-balance depreciation?
Answer: Full disclosure principle
The full disclosure principle requires companies to reveal their chosen accounting policies, typically in the notes to financial statements.