Certain underlying considerations have had an important impact on the development of generally accepted accounting principles. Following is a list of these underlying considerations, as well as a list of statements describing them.
a. Going concern or continuity
b. Monetary unit
e. Full disclosure
g. Transaction approach
h. Accrual basis
i. Industry practices
m. Historical cost
n. Time period
o. Business entity
____ 1. The business for which the financial statements are prepared is separate and distinct from the owners.
____ 2. The assumption is made that the entity will remain in business for an indefinite period of time.
____ 3. Accountants need some standard of measure to bring financial transactions together in a meaningful way.
____ 4. Revenue should be recognized when the earning process is virtually complete and the exchange value can be objectively determined.
____ 5. This concept deals with when to recognize the costs that are associated with the recognized revenue.
____ 6. Accounting reports must disclose all facts that may influence the judgment of an informed reader.
____ 7. This concept involves the relative size and importance of an item to a firm.
____ 8. The accountant is required to adhere as closely as possible to verifiable data.
____ 9. Some companies use accounting reports that do not conform to the general theory that underlies accounting.
____ 10. The accountant records only events that affect the financial position of the entity and, at the same time, can be reasonably determined in monetary terms.
____ 11. Revenue must be recognized when it is realized (realization concept), and expenses are recognized when incurred (matching concept).
____ 12. The entity must give the same treatment to comparable transactions from period to period.
____ 13. The measurement with the least favorable effect on net income and financial position in the current period must be selected.
____ 14. Of the various values that could be used, this value has been selected because it is objective and determinable.
____ 15. With this assumption, inaccuracies of accounting for the entity short of its complete life span are accepted.
Place the appropriate letter identifying each quality on the line in front of the statement describing the quality.