When it comes to reporting their financial information, businesses are required to adhere to a set of regulations and standards known as accounting principles. GAPs, or generally accepted accounting principles, are specified by the Financial Accounting Standards Board (FASB) (GAAP).
Salient Features of Accounting Principles
- Accounting standards are established in order to improve the accuracy of financial data provided by businesses.
- Financial Accounting Standards Board (FASB) in the United States creates the Generally Accepted Accounting Principles (GAAP) (GAAP).
- GAAP is required for all publicly listed firms in the United States; non-publicly traded companies also regularly apply GAAP.
- International Financial Reporting Standards (IFRS) are developed by the International Accounting Standards Board (IASB) (IFRS).
- There are no immediate intentions to adopt IFRS in the United States, despite the FASB and IASB working together on controversial topics.
Purpose of Accounting Principles
Accounting rules are only effective if the financial statements of a business are complete, consistent, and comparable. Financial statement trends and time-series data will be much easier for investors to analyze and derive valuable insights from as a result of this. Comparing financial data from different organizations is also made easy. Accounting fraud may be prevented and detected more easily thanks to the increased openness and attention given to potential red flags provided by financial reporting standards.
Generally Accepted Accounting Principles (GAAP)
To maintain their stock exchange listing, publicly-traded companies in the United States must issue GAAP-compliant financial statements on a regular basis. The financial statements and associated notes of publicly traded companies must be generated in accordance with GAAP by the company's CEO and independent auditors.
Following are some of the multiple choice questions on the Accounting Principles with answers that will help the students in developing their knowledge.
Accounting Principles MCQ
1. The accounting profession follows generally accepted accounting principles as defined by
2. Characteristics of generally accepted accounting principles include all of the following except
3. According to IFRS principles, we can consider:
4. This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate independent entities
5. This concept states that a business firm will continue to carry on its activities for an indefinite period of time.
6. It helps in calculating tax on business income calculated for a particular time period.
7. This concept requires asset to be shown at the price it has been acquired, which can be verified from the supporting documents.
8. It encourages the accountant to post each entry in opposite sides of two affected accounts
9. If all the business transactions are expressed in monetary terms, it will be easy to understand the accounts prepared by the business enterprise.
10. Which of the following is not a correct form of the Accounting Equation?
11. A written statement showing the value of a company at a particular time
12. According to the Inventory method, GAAP prefers:
13. The same accounting procedure must be followed in the same way in each accounting period.
14. What does GAAP stand for?
15. Which principle refers to relative importance of an item or an event?
16. Which concept says that accounting should be free from bias?
17. A business record should never be mixed with owners's personal records- Identify the principle
18. A written policy document issued by expert accounting body or body of government or regulatory body covering the aspects of recognition, treatment, measurement, presentation and disclosure of accounting.
19. A bookkeeper should always present the facts objectively and refrain from slanting information in a misleading way.
20. Mia: What does GAAP ________________?Vincent: It means 'Generally Accepted Accounting Principles'
21. What is the most important purpose of IFRS?
22. Inventory is recorded at the lower of cost or net realizable value rather than the expected selling price. This ensures profit on the sale of inventory is only realized when the actual sale takes place.
23. Mr. Philip Pines is the owner of a beauty spa and wellness salon. He bought a residential house and lot which he included in the balance sheet of a beauty spa and wellness salon. This is a violation of accounting principle.
24. The manager of the business wrote on a piece of paper that utility expenses incurred by the business were paid the amount of P2,222. The bookkeeper asked for the invoice evidencing the payment before recording it in journal.
25. Information is based on actual costs incurred in transactions.
26. Financial statements contain all information necessary to understand a business's financial condition.
27. The revenue from business activities and the expenses associated with earning that revenue are recorded in the same accounting period.
28. An accounting standard can be ignored if the net impact of doing so has such a small impact on the financial statements that a reader of the financial statements would not be misled.
29. Business transactions are reported in numbers that have common values—that is, using a common unit of measurement.
30. Financial statements are prepared with the expectation that a business will remain in operation indefinitely.
32. The Corona Limited Co. has three plants nationwide that cost a total of P200 million. The current fair value of the plants is P600 million. The plants will be recorded and reported as assets at:
33. Mrs Do has personal properties of amounting to P3 million pesos. One half of this was invested in the business called Do Laundry Shop and the other half in another business called Do Convenience Store. Two financial reports were prepared by the bookkeeper, one for each business.
34. These are broad, general statements or “rules” and “procedures” that serve as guides in the practice of accounting
35. Failure to keep information confidential could open the door to fraud, identity theft, and other illegal activities if the information is shared with the wrong parties.
36. Bilis Computer Shop purchased P200 paper puncher. The useful life of paper puncher is 5 years. The bookkeeper expense the entire cost of P200 in the year it is purchased.
37. On June 25, Galing Repair Shop rendered service shop to a client for P600. The service fee was collected July 4. The bookkeeper recorded the revenue on June 25.
38. State the concept- The same accounting procedure must be followed in the same way in each accounting period
39. Cost concept is also called as
40. Do not anticipate a profit, but provide for all possible losses- Identify the accounting principle
41. The value of money is considered to have static value as the transaction are recorded at the value on the transaction date- The following statement is limitation of which principle?
42. According to which concept, an asset is recorded in the books of account at price paid to acquire it and the cost is the basis for all subsequent accounting of the asset?
43. GAAP is primarily used in
44. Is the temporary acquisition of money with the intent to repay the amount borrowed
45. Payable, long-term loans, deferred compensation, deferred revenues, deferred income taxes are
46. Select the appropriate number
48. Equal to cash or will be converted into cash within a year; Used to fund immediate or current needs
49. Image that you need $ 300.000 to spend during your next vacation, but you only have $200.000. It means that don’t have enough _______________
50. Choose the correct/s alternative/s____________ what happens with GAAP, with IFRS, all debts are considered non current on the balance sheet.
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