Which of the following are accounting limitations? (i) Accounting system records only historical events. (ii) Accounting ignores the effect of inflation on the value of fixed assets. (iii) Accounting information does not include the costs of pollution and employee accidental injuries.
All of (i), (ii) and (iii)
The correct answer is option 2. Accounting limitations include the recording of only historical events, ignoring inflation effects on fixed assets, and not accounting for the external costs like pollution or employee injuries. These are recognized limitations in the traditional accounting system.
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.
