Accounting MCQ Questions and Solutions with Explanations | Commerce

A cash book with cash bank and discount column is commonly referred as The prudence concept. Under the prudence concept, do not overestimate the amount of revenues recognized or underestimate the amount of expenses.

Ownership in business entities can be a sole proprietorship, partnership, or corporation. From the accounting perspective and its purpose these types of business are considered separate entities from their owners. The corporation is only one considered as a separate legal entity.

Prudence is the application of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence does not allow, for example, the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses, because the financial statements would not be neutral and therefore, not have the quality of reliability.

The revenue recognition principle dictates that all types of incomes should be recorded or recognized when they are earned. The revenue recognition principle, a combination of accrual accounting and the matching principle, stipulates that revenues are recognized when realized and earned, not necessarily when received.

The matching concept matches revenues with expenses. The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period.

The allocation of owner's private expenses to his/her business violates Separate business entity concept. The business entity concept states that the transactions associated with a business must be separately recorded from those of its owners or other businesses.

The going concern concept assumes that the entity continue running for forseeable future. The going concern principle is the assumption that an entity will remain in business for the foreseeable future.

American companies prepare their financial statement in Dollars whereas Japanese companies produce financial statement in Yen. This is an example of Unit of measurement concept.

Accounting period is time spann into which the total life of a business is divided for the purpose of preparing financial statements. This period defines the time range over which business transactions are accumulated into financial statements, and is needed by investors so that they can compare the results of successive time periods.

Materiality is a concept in financial accounting and reporting that firms may disregard trivial matters, but they must disclose everything that is important to the report audience. Items that are important enough to matter are material items.