A company spreads out the cost of insurance over the whole year. Which principle is this? (Going concern/ prudence/ matching / consistency)
Matching, the company spreads out the cost of insurance over the year, recording part of the expense each month.
A company uses the same reporting method each year for sales. Which principle is this? (Prudence/ consistency / matching / going concern)
Consistency, the same format of reporting method every year.
A company shows expenses only when they help to earn revenue. Which principle is this? (Going concern / consistency / matching / prudent)
Matching, the company shows related expenses with its revenue.
A company does not record a possible big gain from a legal case — only when it’s final. Which principle is this? (Going concern/ matching/ prudence / consistency)
Prudence, the company doesn't record future gains that are unsure.
A company uses the same method for calculating inventory every year. Which principle is used in this practice? (Going Concern/Matching/Prudence/Consistency)
Consistency, By using the same inventory method every year, the company ensures that comparisons between years are possible.
A company does not change its way of reporting profits unless it explains the reason. Which principle is this? (Matching/ Consistency / Prudence/ Going Concern)
Consistency principle ensures that accounting methods are stable unless there is a clear reason for change.
A company pays for office rent in advance. It spreads the cost over the months used. Which principle is this? (Going concern/ matching/ consistency / prudent)
Matching, the company spreads the cost over the months used of the rent.
Define the Prudence principle with your own words
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A company assumes it will continue, so it doesn’t sell all its assets quickly. Which principle is this? (Matching/ Consistency / Going Concern / Prudence)
Going concern principle. The company assumes it will continue to operate, so it doesn’t need to sell all its assets immediately.
Determine whether the following statement is true or false: Going concern principle means being cautious in accounting, avoiding overstating a business's financial health.
False, going concern principle is when we assume the business will keep running as usual, so financial records can be prepared normally.
Coca-Cola uses the same accounting method for 5 straight years. Which principle is this? (Going Concern / Matching / Prudence / Consistency)
Consistency, because they use the same method for years.
A company records income and expenses in the same period. Which principle is used in this practice? (Prudence/Going Concern/Matching/Consistency)
Matching, because the company records income and expenses in the same period.
Boeing reports aircraft as long-term assets, not scrap metal value. Which principle is this?
Going concern, because it assumes continued operations.
A company records a machine at a lower value because the market price dropped. Which principle is this? (Consistency/ Prudence / Going Concern / Matching)
Matching, the company avoids overstating the value of its asset.
A company sets money aside because a customer might not pay. Which principle is used in this practice? (Going Concern/Matching/Prudence/Consistency)
Prudence, the company records a possible loss (due to the unpaid customer) to avoid overstating its assets. showing caution.
A delivery company records fuel costs in March because those deliveries earned revenue in March. Which principle is this? (Going Concern / Consistency / Matching / Prudence)
Matching principle, We match expenses to the revenue they help generate. The March fuel costs directly helped earn March delivery income
A company continues to show long-term plans in reports, because it plans to stay open. Which principle is used in this practice? (Going Concern/Matching/Prudence/Consistency)
Going Concern, The company assumes it will continue its business, so it prepares its accounts normally without anticipating closure.
Define the Consistency principle with your own words