List - I List - II A. Making provision for bad and doubtful debts and for discount on debtors I. Cost Concept B. Expenses should be recognised in the period in which associated revenue is recognised II. Going Concern C. Assets are not shown at their current realisable value III. Matching Concept D. Internally generated goodwill is not recorded in the books of account IV. Conservatism
Accounting Concepts Matching: Solution Breakdown
This question requires matching accounting principles from List I with their descriptions in List II. The correct matching is based on standard accounting concepts.
List I Matched with List II
- A. Making provision for bad and doubtful debts and for discount on debtors matches with IV. Conservatism.
- B. Expenses should be recognised in the period in which associated revenue is recognised matches with III. Matching Concept.
- C. Assets are not shown at their current realisable value matches with II. Going Concern.
- D. Internally generated goodwill is not recorded in the books of account matches with I. Cost Concept.
Reasoning for Matches
- A - IV (Conservatism): The principle of conservatism dictates anticipating potential losses (like bad debts) but not potential gains. Creating provisions is a direct application of this.
- B - III (Matching Concept): This is the definition of the matching concept, which pairs expenses with the revenues they helped generate in the same period.
- C - II (Going Concern): The going concern assumption means the business is expected to continue operating. Assets are valued based on their use in continuing operations (e.g., historical cost less depreciation), not their immediate sale value (realisable value).
- D - I (Cost Concept): The cost concept requires assets to be recorded at their historical cost. Since internally generated goodwill lacks a verifiable acquisition cost, it is not recorded under this concept.
Correct Option Identification
Based on the reasoning above, the correct matching is A-IV, B-III, C-II, D-I. This corresponds to Option 2.
Important Questions from Basic accounting principles
The generally acceptable accounting principles (GAAP) fulfill the conditions of
(i) Relevance
(ii) Objectivity
(iii) Feasibility
A firm purchases a piece of land after making full payment to the seller. However, the legal formalities are yet to be completed. According to which principle does the firm record the transaction in its books of accounts though the legal formalities are NOT completed?
Which of the given options best describes the truthfulness of the following statements?
Statement-1: Generally Accepted Accounting Principles (GAAP) is to be followed by companies so that investors have an optimum level of consistency in the financial statements they use when analyzing companies for investment purposes.
Statement-2: Generally Accepted Accounting Principles (GAAP) cover aspects like revenue recognition, balance sheet item classification and outstanding share measurements.
________ convention underlines the prudence of understating rather than over-stating the net income of an entity for a period and the net assets as on a particular date.
______ convention proposes that while accounting for various transactions, only those which may have significant effect on profitability or financial status of the business should have special consideration for reporting.
