4. Give the assumption or principle that would have been violated if the followi

Question

4. Give the assumption or principle that would have been violated if the following entries or information had not been given: a. An Adjustment is made for Depreciation at the EFY: b. Pre-paid Insurance is an Asset account and is adjusted at EFY to reflect how much has been used up. c. Changing inventory valuation methods is not allowed. d. Recording Interest the company has earned on a Notes Receivable at EFY even though it has not been received. e. Owners are not allowed to co-mingle their personal funds with their business funds.

Explanation / Answer

a) Matching principle: Since all expenses incurred during the period to earn the revenue should be accounted as per this principle.

b) Matching principle: Since all expenses incurred during the period to earn the revenue should be accounted as per this principle.

c) Consistency: The method of inventory valuation should be followed consistently unless the change is mandated by law or results in better preparation of accounts.

d) Accrual concept: All the incomes and expenses that have been earned/incurred during the period should be accounted even though the same have not been received or paid.

e) Economic entity assumption: It assumes that the business and the owners are separate.

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.