Accounting Conventions

What is the assumption that the life of a business continues well into the future called?

Going Concern Concept.

What convention records a non-current asset such as land at its original cost?

Historical Cost convention.

What doctrine encourages understatements of profit rather than overstatements?

Prudence.

What is necessary for a transaction to be recorded in the books of business?

A Monetary value must be given.

What does the Accounting period convention state about the life of a business?

It should be broken down into equal time periods of at least one year.

What concept separates the business from the owner?

Accounting entity concept.

What does the doctrine of Materiality state regarding accounting reports?

They should contain all relevant information for understanding the financial position.

How do accounting reports reflect the doctrine of Materiality in terms of reporting values?

Large businesses report in higher values (hundreds, thousands, millions), while small businesses report in exact dollars and cents.

What happens if the Historical Cost Convention or Prudence doctrine is not followed?

Significant variances may appear that did not actually occur.