Theory Base of Accounting

Topics in this chapter

• Purpose and Limitations of Accounting
• Fundamental Accounting Concepts
• Accounting Equation and Dual Aspect
• Accounting Bases and Measurement
• Accounting Principles and Conventions
• Accounting Standards and Framework

Cheat sheet

Practice questions

1. Question 1Q-3BAC9F

   Which accounting principle states that business is considered separate and distinct from its owner?

   1. A.Going Concern Principle
   2. B.Business Entity Principle
   3. C.Accounting Period Principle
   4. D.Matching Principle
   See the answer and solution
2. Question 2Q-0DC411

   According to which concept are transactions recorded in the books of accounts at the price paid to acquire them, regardless of their current market value?

   1. A.Dual Aspect Concept
   2. B.Accrual Concept
   3. C.Historical Cost Concept
   4. D.Realisation Concept
   See the answer and solution
3. Question 3Q-08F5B9

   Explain the 'Matching Concept' in accounting and state why it is important for determining net income.

   See the answer and solution
4. Question 4Q-18B9A1

   What is the primary objective of adopting Accounting Standards?

   1. A.To eliminate the need for an external auditor
   2. B.To ensure transparency, consistency, and comparability of financial statements
   3. C.To guarantee that a company will never face bankruptcy
   4. D.To reduce the tax liability of corporate entities
   See the answer and solution
5. Question 5Q-DA77C2

   Which of the following describes the Full Disclosure Principle?

   1. A.Recording only transactions that can be measured in monetary terms
   2. B.Providing all significant and relevant financial information in the financial statements and footnotes
   3. C.Anticipating no profits and providing for all possible losses
   4. D.Treating the business as having an indefinite life span
   See the answer and solution