Which of the following statements concerning the exercise of prudence is correct
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1. LO 3.1That a business may only report
activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally, is known as which of the following? 2. LO 3.1That companies can present useful information in shorter time periods such as years, quarters, or months is known as which of the following?
3. LO 3.1The system of using a monetary unit, such as the US dollar, to value the transaction is known as which of the following?
4. LO 3.1Which of the following terms is used when assuming a business will continue to operate in the foreseeable future?
5. LO 3.1The independent, nonprofit organization that sets financial accounting and reporting standards for both public- and private-sector businesses that use generally accepted accounting principles (GAAP) in the United States is which of the following?
6. LO 3.1The standards, procedures, and principles companies must follow when preparing their financial statements are known as which of the following?
7. LO 3.1These are used by the FASB, and it is a set of concepts that guide financial reporting.
8. LO 3.1This is the independent federal agency protecting the interests of investors, regulating stock markets, and ensuring companies adhere to GAAP requirements.
9. LO 3.1Which of the following is the principle that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided?
10. LO 3.1Which of the following is the principle that a business must report any business activities that could affect what is reported on the financial statements?
11. LO 3.1Also known as the historical cost principle, ________ states that everything the company owns or controls (assets) must be recorded at their value at the date of acquisition.
12. LO 3.1Which of the following principles matches expenses with associated revenues in the period in which the revenues were generated?
13. LO 3.2Which of the following does not accurately represent the accounting equation?
14. LO 3.2Which of these statements is false?
15. LO 3.2Which of these accounts is an asset?
16. LO 3.2Which of these accounts is a liability?
17. LO 3.2If equity equals $100,000, which of the following is true?
18. LO 3.3Which process of the accounting cycle often requires the most analytical thought?
19. LO 3.3The step-by-step process to record business activities and events to keep financial records up to date is ________.
20. LO 3.3One operating cycle of a business, which could be a month, quarter, or year, is commonly referred to as which of the following?
21. LO 3.3 ________ takes all transactions from the journal during a period and moves the information to a general ledger (ledger).
22. LO 3.4Which of these events will not be recognized?
23. LO 3.4A company purchased a building twenty years ago for $150,000. The building currently has an appraised market value of $235,000. The company reports the building on its balance sheet at $235,000. What concept or principle has been violated?
24. LO 3.4What is the impact on the accounting equation when a current month’s utility expense is paid?
25. LO 3.4What is the impact on the accounting equation when a payment of account payable is made?
26. LO 3.4What is the impact on the accounting equation when an accounts receivable is collected?
27. LO 3.4What is the impact on the accounting equation when a sale occurs?
28. LO 3.4What is the impact on the accounting equation when stock is issued, in exchange for assets?
29. LO 3.5Which of the following accounts is increased by a debit?
30. LO 3.5Which of the following accounts does not increase with a debit entry?
31. LO 3.5Which of the following pairs increase with credit entries?
32. LO 3.5Which of the following pairs of accounts are impacted the same with debits and credits?
33. LO 3.5Which of the following accounts will normally have a debit balance?
34. LO 3.5What type of account is prepaid insurance?
35. LO 3.5Unearned service revenue occurs when which of the following occurs?
36. LO 3.5Which set of accounts has the same type of normal balance?
37. LO 3.5Which of these transactions requires a debit entry to Cash?
38. LO 3.5Which of these transactions requires a credit entry to Revenue?
39. LO 3.5Which of these accounts commonly requires both debit and credit entries?
40. LO 3.5Which of the following accounting records is the main source of information used to prepare the financial statements?
41. LO 3.5Which of the following financial statements should be prepared first?
Which of the following is true regarding prudence principle of accounting?The concept states that a conscious approach should be adopted in ascertaining income so that profits of the enterprise are not overstated.
Which of the following is an example of prudence concept?The prudence principle is, for example, applied when a company is expecting bad or doubtful debts. Here, the business creates a special contra asset to accounts receivable called allowance for bad debts. This ensures that the accounts receivable balance shows a realistic figure of anticipated profits or losses.
Which statements is the most suitable with prudence concept?Under the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses. Also, one should be conservative in recording the amount of assets, and not underestimate liabilities. The result should be conservatively-stated financial statements.
What is the concept of prudence in accounting?In accounting theory and practice, prudence has traditionally been defined as the principle of recognizing expenses immediately (i.e., not overstating assets) and not recognizing income until it is reasonably certain (i.e., deferring revenue recognition).
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