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Assumptions,Principles, and Constraints of Operational Guidelines

Presented below are a number of operational guidelines and practices that have developed over time.

Instruction:
Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices.(Do not use qualitative characteristics.)

(a) Market value changes are not recognized in the accounting records.

(b) Lower of cost or market is used to value inventories.

(c) Financial information is presented so that investors will not be misled.

(d) Intangible assets are capitalized and amortized over periods benefited.

(e) Repair tools are expensed when purchased.

(f) Agricultural companies use market value for purposes of valuing crops.

(g) Each enterprise is kept as a unit distinct from its owner or owners.

(h) All significant postbalance sheet events are reported.

(i) Revenue is recorded at point of sale.

(j) All important aspects of bond indentures are presented in financial statements.

(k) Rationale for accrual accounting.

(l) The use of consolidated statements is justified.

(m) Reporting must be done at defined time intervals.

(n) An allowance for doubtful accounts is established.

(o) All payments out of petty cash are charged to Miscellaneous Expense (Do not use conservatism.)

(p) Goodwill is recorded only at time of purchase.

(q) No profits are anticipated and all possible losses are recognized.

(r) A company charges its sales commission costs to expense.

Thank you

Solution Preview

(a) Market value changes are not recognized in the accounting records.
HISTORICAL COST PRINCIPLE
(b) Lower of cost or market is used to value inventories.
CONSERVATISM
(c) Financial information is presented so that investors will not be misled.
FULL DISCLOSURE PRINCIPLE
(d) Intangible assets are capitalized and amortized over periods benefited.
MATCHING PRINCIPLE
(e) Repair ...

Solution Summary

Assumptions, principles and constraints of operational guidelines are analyzed.

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