E2-4 Presented below are the assumptions, principles, and constraints used

E2-4 (Assumptions, Principles, and Constraints)

Presented below are the assumptions, principles, and constraints used in this chapter.

 

1. Economic entity assumption

 

2. Going concern assumption

 

3. Monetary unit assumption

 

4. Periodicity assumption

 

5. Historical cost principle

 

6. Fair value principle

 

7. Expense recognition principle

 

8. Full disclosure principle

 

9. Cost-benefit relationship

 

10. Materiality

 

11. Industry practices

 

12. Conservatism

 

Instructions

 

Identify by number the accounting assumption, principle, or constraint that describes each situation on the next page. Do not use a number more than once. 

(a) Allocates expenses to revenues in the proper period. 

 

(b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)

 

(c) Ensures that all relevant financial information is reported. 

 

(d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)

 

(e) Anticipates all losses, but reports no gains. 

 

(f) Indicates that personal and business record keeping should be separately maintained. 

 

(g) Separates financial information into time periods for reporting purposes.

 

(h) Permits the use of fair value valuation in certain industries. (Do not use fair value principle.) 

 

(i) Requires that information significant enough to affect the decision of reasonably informed users should be disclosed. (Do not use full disclosure principle.) 

 

(j) Assumes that the dollar is the “measuring stick”used to report on financial performance