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Business Considerations - Matching

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Certain underlying considerations have had an important impact on the development of generally accepted accounting principles. Following is a list of these underlying considerations as well as a list of statements describing them.

a) Going concern or continuity
b) Monetary unit
c) Conservatism
d) Matching
e) Full disclosure
f) Materiality
g) Transaction approach
h) Accrual basis
i) Industry practices
j) Verifiability
k) Consistency
l) Realization
m) Historical cost
n) Time period
o) Business entity

---1) The business for which the financial statements are prepared is separate and distinct from the owners
---2) The assumption is made that the entity will remain in business for an indefinite period of time
---3) Accountants need some standard of measure to bring financial transaction together in a meaningful way.
---4) Revenue should be recognized when the earning process is virtually complete and the exchange value can be objectively determined.
---5) This concept deals with when to recognize the costs that are associated with the recognized revenue
---6) Accounting reports must disclose all facts that may influence the judgment of an informed reader
---7) This concept involves the relative size and importance of an item to a firm
---8)The accountant is required to adhere as closely as possible to verifiable data.
---9) Some companies use accounting reports that do not conform to the general theory that underlies accounting
---10) The accountant records only events that affect the financial position of the entity and, at the same time, can be reasonably determined in monetary terms.
---11) Revenue must be recognized when it is realized (realization concept), and expenses are recognized when incurred (matching concept)
---12) The entity must give the same treatment to comparable transactions from period to period
---13) The measurement with the least favorable effect on net income and financial position in the current period must be selected
---14) Of the various values that could be used, this value has been selected because it is objective and determinable
---15) With this assumption, inaccuracies of accounting for the entity short of its complete life span are accepted

Required Place the appropriate letter identifying each quality on the line in front of the statement describing the quality.

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-0--1) The business for which the financial statements are prepared is separate and distinct from the owners

Business entity

-a--2) The assumption is made that the entity will remain in business for an indefinite period of time

Going concern or continuity

--g-3) Accountants need some standard of measure to bring financial transaction together in a meaningful way.

Transaction approach

--l-4) Revenue should be recognized when the earning process is virtually complete and the exchange ...

Solution Summary

The solution matches definitions with various business terms.

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Classification of Accounts/Accounting concepts

(See attached file for full problem description)

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E1

The lettered items below represent a classification scheme for the concepts of financial accounting. Match each number term with the letter of the category in which it belongs.

a. Decision makers (users of accounting information)
b. Business activities or entities relevant to accounting measurement
c. Objectives of accounting information
d. Accounting measurement considerations
e. Accounting processing considerations
f. Qualitative characteristics
g. Accounting conventions
h. Financial statements

1. conservatism
2. verifiability
3. statement of cash flows
4. materiality
5. reliability
6. recognition
7. cost-benefit
8. understandability
9. business transactions
10. consistency
11. full disclosure
12. finishing information that is useful to investors and creditors
13. Specific business entities
14. classification
15. management
16. neutrality
17. internal accounting
18. valuation
19. investors
20. timeliness
21. relevance
22. furnishing information that is useful in assessing cash flow prospects

E2

Each of the statements below violates a convention in accounting. State which of the following accounting conventions is violated: comparability and consistency, materiality, conservatism, full disclosure, or cost-benefit.

1. A series of reports that are time-consuming and expensive to prepare is presented to the board of directors each month even though the reports are never used.
2. A company changes its method of accounting for depreciation.
3. The company in #2 does not indicate in the financial statements that the method of depreciation was changed, nor does it specify the effect of the change on net income.
4. A new office building next to the factory is debited to the Factory account because it represents a fairly small dollar amount in relation to the factory.
5. The asset account for a pickup truck still used in the business is written down to what the truck could be sold for even though the carrying value under conventional depreciation methods is higher.

E3

The lettered items below represent a classification scheme for a balance sheet, and the numbered items are account titles, Match each account with the letter of the category in which it belongs.

a. current assets
b. investments
c. property, plant, and equipment
d. intangible assets
e. current liabilities
f. long-term liabilities
g. owner's equity
h. not on balance sheet

1. patent
2. building held for sale
3. prepaid rent
4. wages payable
5. note payable in five years
6. building used in operations
7. fund held to pay off long-term debt
8. inventory
9. prepaid insurance
10. depreciation expense
11. accounts receivable
12. interest expense
13. unearned revenue
14. short-term investments
15. accumulated depreciation
16. M. Capelli, Capital

E4

The following data pertain to a corporation: Prepare a classified balance sheet; omit the heading.

Cash, $31,200
Investments in Six-Month Government Securities, $16,400
Accounts Receivable, $38,000
Inventory, $40,000
Prepaid Rent, $1,200
Investment in Corporate Securities (long-term), $20,000
Land, $8,000
Building, $70,000
Accumulated Depreciation, Building, $14,000
Equipment, $152,000; Accumulated Depreciation, Equipment, $17,000
Copyright, $6,200
Accounts Payable, $51,000
Revenue in Advance, $2,800
Bonds Payable, $60,000
Common Stock, $10 par, 10,000 shares authorized, issued, and outstanding, $100,000
Paid-in Capital in Excess of Par Value, $50,000
Retained Earnings, $88,200

Assets

Liabilities

Owner's Equity

E5

Using the classification scheme below for a multistep income statement, match each account with the letter of the category in which it belongs.

a. net sales
b. cost of goods sold
c. selling expenses
d. general and administrative expenses
e. other revenues and expenses
f. not on income statement

1. Purchases
2. Sales Discounts
3. Merchandise Inventory (beginning)
4. Interest income
5. Advertising Expense
6. Office Salaries Expense
7. Freight Out Expense
8. Prepaid Insurance
9. Utilities Expense
10. Sales Salaries Expense
11. Rent Expense
12. Purchases Returns and Allowances
13. Freight In
14. Depreciation Expense, Delivery Equipment
15. Wages Payable
16. Interest Expense
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