Exam I - Intermediate

What is the Historical Cost Principle in accounting?

It is the original cost or value of an item at the time of the transaction for a business.

What does the Business Entity Assumption state?

It states that a business enterprise is legally and economically separate from its owner's personal assets and other businesses.

What is the Going Concern Assumption?

It states that a company will continue to operate indefinitely as long as there is no evidence contrary to its economic growth and survival.

What does the Expense Recognition Principle entail?

It states that expenses incurred during a specific period should be matched with the revenue earned in that period.

When are expenses recorded according to accounting principles?

Expenses are recorded when they are matched with revenue, in the period incurred, or systematically allocated over the period of use.

What is the Revenue Recognition Principle?

Revenue is recognized when earned, even if cash has not been received, following the completion of the service or delivery of goods.

What does the Time Period Concept in accounting ensure?

It ensures that accounting information is reported at regular intervals, such as yearly, quarterly, or monthly.

What is meant by Timeliness in accounting information?

It refers to information being available promptly to investors and decision-makers.

What is Materiality in the context of financial reporting?

It determines the relevance of information, where material information affects decisions made by users of financial statements.

What does Conservatism mean in accounting?

It is an approach where accountants understate net assets and net income, especially when the value of expenses and liabilities is uncertain.

What does GAAP stand for and what is it?

GAAP stands for Generally Accepted Accounting Principles; it is the accounting standards that U.S. companies must follow when compiling their financial statements.

What is IFRS and who establishes it?

IFRS stands for International Financial Reporting Standards, which are established by the International Accounting Standards Board (IASB) to provide a global framework for financial reporting.

What are Closing Entries in accounting?

Journal entries made at the end of an accounting period to zero out temporary accounts and transfer their balance to permanent accounts.

What are Adjusting Entries?

Journal entries made at the end of an accounting period to update an account, ensuring revenues and expenses are recognized in the correct period.