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Accounting assumptions, principles, constraints

Certain accounting assumption, principle, or constraint are given and they have to be matched with the the situations that follow.

Identify by number the accounting assumptions, principle, or constraint that describes each situation below.
Do not use a number more than once.

1) Economic entity assumption
2) Going concern assumption
3) Monetary Unit assumption
4) Time period assumption
5) Full disclosure principle
6) Revenue recognition principle
7) Matching principle
8) Cost principle
9) Materiality
10) Conservatism

(a) Repair tools are expensed when purchased. These repair tools have useful life of more than one accounting period (do not use conservatism)
(b) Expenses should be allocated to revenues in proper period.
(c ) The dollar is the measuring stick used to report financial information.
(d) Financial information is separated into time periods for reporting purposes.
(e) Market value changes subsequent to purchase are not recorded in the accounts. ( Do not use revenue recognition principle)

(f) Personal and business record keeping should be separately maintained.

(g) All relevant financial information should be reported.

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

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Note: definitions have been taken from:
http://faculty.seattlecolleges.com/jnordlin/ACC220/CH12/LN/CH12LN.htm
Financial Accounting by Horngren and Sundem

(a) Repair tools are expensed when purchased. These repair tools have useful life of more than one accounting period (do not use conservatism)

9) Materiality
Materiality relates to an item's impact on a firm's overall financial condition and operations.
Since the cost of repair tools is small it does not make sense to capitalize the costs even though the useful life is more than 1 year.

(b) Expenses should be allocated to revenues in proper period.

7) Matching principle

"The matching principle ...

Solution Summary

The following accounting assumptions, principles, or constraints (Economic entity assumption, Going concern assumption, Monetary Unit assumption, Time period assumption, Full disclosure principle, Revenue recognition principle, Matching principle, Cost principle, Materiality, Conservatism) are matched with the situations that follow.

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