1. Business Entity
Looking at Finlay Interiors, Carol Finlay must not include personal expens, such as clothing and the cost of going to the movies, as expens of her business.
2. Going Concern
It is assumed from a review of Finlay Interiors’ financial statements that the business is continuing its operations, becau information to the contrary is not included.
3. Monetary Unit (also consistent with the Cost Principle)
Assume that in August 2006 Finlay Interiors purchad furniture from a supplier in the United States at a total cost of $1,000 (U.S.), or $1,489 (Cdn) ($1,000/0.6716 exchange rate). If the exchange rate changes veral months later to 0.6412, Finlay Interiors does not restate the value of the furniture to $1,560 ($1,000/0.6412). The furniture remains in the accounting records at $1,489 (Cdn)
1. Objectivity
If Carol Finlay purchas new furniture and records the transaction bad on an invoice prepared by the ller, the invoice is independent and unbiad evidence that verifies the details of the transaction.
2. Cost
If Finlay Interiors purchad ud furniture for $5,000 cash, it is recorded in the accounting records at $5,000. It makes no difference if Carol Finlay thinks that the value of the furniture is $7,000.
3. Revenue Recognition
Assume that on April 3, Finlay Interiors performed work for a client in the amount of $600. The client did not pay the $600 until May 15. Revenue is recorded when actually earned on April 3 in the amount of $600, the value of the noncash ast received by Finlay Interiors.
Alternatively, if Finlay Interiors received $1,000 on April 15 for work to be done next mont
h, revenue is not recorded until the work is actually done in May.
Exerci 1 – Accounting Cycle and GAAP
1. Which of the following statements is fal regarding a sole proprietorship? B
a. A proprietorship has only one owner.
b. A proprietorship is legally a parate entity.
c. The owner is subject to unlimited liability.
d. Income of the proprietorship is taxed on the owner’s personal return.
2. External urs of financial information include all of the following except: C
a. Shareholders
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c. Managers
d. Suppliers
3. The consistency principle: C
a. Requires a company to u the same accounting methods period after period.
b. Doesn't require a company to u one method exclusively.金屋藏娇的故事
c. Both a and b only.
d. Is also called the full disclosure principle.
e. Both a and d only.
4. The full disclosure principle: D
a. Requires that when a change in inventory valuation is made, the notes to the statements
report the type of change.
b. Requires that when a change in inventory valuation is made, the notes to the statements
report the justification for the change.
c. Requires that any change in net income due to changes in inventory valuation be reported.
d. All of the above.
e. Both a and b only.
5. The conrvatism principle: A
a. Requires that when more than one estimate of amounts to be received or paid in the future
are equally likely, then the less optimistic amount should be ud.
b. Requires that a company u the same accounting methods period after period.
c. Requires that revenues and costs be reported in the period in which they are earned or
incurred.
d. Requires that all items of a material nature be included in financial statements.
e. Requires that all inventory items be reported at full cost.
6. The accounting principle that demands that all transactions are recorded at their original value is the: C
a) 阴阳什么意思materiality principle
b) conrvatism principle
c) 安全经验分享cost principle
d) full-disclosure principle
e) realization principle.
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7. Recording amortization expen at the end of the accounting period is an application of the: B
a) realization principle
b) matching principle
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c) cost principle
d) consistency principle
e) none of the above.
8. One of the purpos of Allowance for Doubtful Accounts is to ensure that Accounts Receivable are not overstated on the balance sheet. This is an application of the: C
a) consistency principle
b) objectivity principle
c) conrvatism principle
d) full-disclosure principle
e) cost principle.
9. Generally accepted accounting principles require that the inventory of a company be reported at: C
a. Market value.
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b. Historical cost.明星照
