List – I List – II a. Principle of Separate Entity i. Valuing Plant and Machinery at cost less depreciation. b. Principle of Conservatism ii. Recording punctuality and honesty of employees of an organization. c. Principle of Money Measurement iii. Capital contributed by proprietor is shown as liability in Balance Sheet. d. Historical cost concept iv. Valuing inventories at cost or market price whichever is less.
Matching Accounting Principles: List I & II
This section provides a step-by-step matching of accounting principles from List I with their descriptions in List II, concluding with the correct option code.
a. Separate Entity Principle Matching
The Principle of Separate Entity requires that a business is treated as distinct from its owners. Therefore, capital contributed by the proprietor is shown as a liability in the Balance Sheet. This matches with item (iii).
b. Conservatism Principle Matching
The Principle of Conservatism (or Prudence) guides accountants to anticipate potential losses but not potential profits. Valuing inventories at the lower of cost or market price is a direct application of this principle, as it accounts for a potential decrease in value. This matches with item (iv).
c. Money Measurement Principle Matching
The Principle of Money Measurement restricts accounting records to transactions and events that can be expressed in monetary terms. Item (ii), recording punctuality and honesty of employees, refers to qualitative aspects not typically recorded under this principle. However, based on the provided options, this is the designated match.
d. Historical Cost Concept Matching
The Historical Cost Concept states that assets should be recorded at their original cost at the time of acquisition. Item (i), valuing Plant and Machinery at cost less depreciation, starts with the initial recording at historical cost. This matches with item (i).
Correct Code Identification
Summarizing the matches:
- a - iii
- b - iv
- c - ii
- d - i
The correct code representing this matching is a - iii, b - iv, c - ii, d - i.
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.
