Question

The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline?

Select one:

a. Cost

b. Economic Entity

c. Monetary Unit

Which principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount?

Select one:

a. Monetary Unit

b. Cost

c. Economic Entity

Which principle/guideline allows a company to ignore the change in the purchasing power of the dollar over time?

Select one:

a. Economic Entity

b. Cost

c. Monetary Unit

Which principle/guideline requires the company's financial statements to have footnotes containing information that is important to users of the financial statements?

Select one:

a. Economic Entity

b. Full Disclosure

c. Conservatism

Which principle/guideline justifies a company violating an accounting principle because the amounts are immaterial?

Select one:

a. Conservatism

b. Full Disclosure

c. Materiality

Answer 1

1.The personal assets of the owner of a company will not appear on the company's balance sheet

Economic entity- it is refers that recorded activities of a business entity keeping the separate from the recorded activities or transaction of it's owner and any other business entities.

2. Cost- principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount

Because cost principle is requires one to the record an asset, liability, or equity investment at its original acquisition cost.

3.monetary unit-principle/guideline allows a company to ignore the change in the purchasing power of the dollar over time

Because here business transaction is expressed in terms of currency. It assumes that value of unit of currency in which we recorded transaction will remain stable over the time. Dollars purchasing power doesn't change which means no inflation.

4.full disclosure-principle/guideline requires the company's financial statements to have footnotes containing information that is important to users of the financial statements

It is refers that a company to disclose the information which is helpful to people to take informed decision regarding the company. Information are relevant to decision of creditors or investors.

5.materiality-principle/guideline justifies a company violating an accounting principle because the amounts are immaterial

Materiality principle states that a company may violate the accounting standards such a small impact is enough on financial statement and will not be mislead the reader of financial statement.

Example, brought a furniture for $150 dollars and used for next 2 years under matching concept we should charge Expense over the next two years, expense is small that no reader of the financial statements will be misled if you charge the entire $150 in acquired year. It would not mislead the decision maker.