Question

Identify which accounting principle or assumption best describes each of the following practices: 1. Stark Company's accounting system maintains the equipment account as if the business will continue operating and not close. 2. Mike Derr owns both Salling Passions and Dockside Digs. In preparing financial statements for Dockside Digs, Mike makes sure that the expense transactions of Sailing Passions are kept separate from Dockside Digs's transactions and financial statements. 3. If $51 thousand cash is paid to buy land, the land is reported on the buyer's balance sheet at $51 thousand. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Stark Company's accounting system maintains the equipment account as if the business will continue operating and not close. Identity which accounting principle or assumption best describes the above practice RE Required Going concern assumption General accounting principle Expense recognition (matching principle Revenue recognition principle

Answer 1

Required 1: Going Concern Assumption

Analysis: The concept of going concern is an underlying assumption in the preparation of financial statements, hence it is assumed that the entity has neither the intention, nor the need, to liquidate or curtail materially the scale of its operations.

Required 2: Business Entity Assumption

Analysis: The business entity concept states that the transactions associated with a business must be separately recorded from those of its owners or other businesses.

Required 3: Measurement ( Cost ) Principle

Analysis: The cost principle requires that assets be recorded at the cash amount (or the equivalent) at the time that an asset is acquired. Further, the amount recorded will not be increased for inflation or improvements in market value.

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