Chapter 4: Accounting principles and end-of-period adjustments
Quiz
Which principle specifies that cost or expenses should be recorded at the same time as the revenue to which they correspond? (Difficulty: Easy)
Prudence principle
Matching principle
Going concern principle
Consistency principle
Which measurement basis is most commonly used by entities to prepare the financial statements because it is the one that requires the fewest hypotheses? (Difficulty: Easy)
Historical cost
Realizable value
Replacement cost
Present value
A business owes a supplier 500 CU and simultaneously has a claim on that very supplier for the same amount. What should be reported in the balance sheet? (Difficulty: Easy)
Nothing
Only a balance of 500 CU on the liabilities side (corresponding to the debt to the supplier)
Only a balance of 500 CU on the assets side (corresponding to the claim on the supplier)
A balance of 500 CU on the assets side and a balance of 500 on the liabilities side
Transactions and other events are accounted for and presented in accordance with: (Difficulty: Easy)
Their legal form
Their materiality
Their substance and economic reality
Their tax impact
Which of the following statements is not consistent with the fact that valuation must be made on a prudent basis? (Difficulty: Easy)
Only profits concretely and definitively earned on the balance sheet date may be included.
If necessary, the creation of excessive provisions or the deliberate overstatement of assets is allowed.
Account must be taken of all foreseeable liabilities and potential losses arising in the course of the financial year concerned or of a previous one, even if such liabilities or losses become apparent only between the date of the balance sheet and the date on which it is drawn up.
Account must be taken of all depreciation whether the result of the financial year is a loss or a profit.
When will the end-of-period entries be carried out? (Difficulty: Moderate)
Difficulty: Moderate
Every time an entry is recorded
When the business is liquidated
Every time a major event is recognized
When do revenues affect net income? (Difficulty: Easy)
In the period during which they are earned
In the period in which their cash equivalent is collected
Both a and b
Neither a nor b
What effect does the end-of-period entry recognizing periodic depreciation have on the basic accounting equation? (Difficulty: Moderate)
Decrease in assets, decrease in liabilities
Decrease in assets, increase in shareholders’ equity
Decrease in assets, increase in liabilities
Decrease in assets, decrease in shareholders’ equity
Interest revenue on a loan granted to an employee becomes due on the anniversary of the loan, 31 March. The annual interest on the loan is 120 CU. How much is recorded in the income statement as of 31 December? (Difficulty: Easy)
0
30
60
90
The opening balance sheet for each financial year must correspond to the closing balance sheet for the preceding financial year. (Difficulty: Easy)